Relocating the Value Chain: Off-Shoring and Agglomeration in the Global Economy

37 Pages Posted: 27 Dec 2010

See all articles by Richard Baldwin

Richard Baldwin

National Bureau of Economic Research (NBER)

Anthony J. Venables

University of Oxford; Centre for Economic Policy Research (CEPR)

Date Written: December 2010

Abstract

Fragmentation of stages of the production process is determined by international cost differences and by the benefits of co-location of related stages. The interaction between these forces depends on the technological relationships between these stages. This paper looks at both cost minimising and equilibrium fragmentation under different technological configurations. Reductions in trade costs beyond a threshold can result in discontinuous changes in location, with relocation of a wide range of production stages. There can be overshooting (off-shoring that is reversed as costs fall further) and equilibrium may involve less off-shoring than is efficient.

Keywords: agglomeration, assembly, fragmentation, off-shoring, parts and components, vertical linkages

JEL Classification: F1, F23, R3

Suggested Citation

Baldwin, Richard and Venables, Anthony J., Relocating the Value Chain: Off-Shoring and Agglomeration in the Global Economy (December 2010). CEPR Discussion Paper No. DP8163. Available at SSRN: https://ssrn.com/abstract=1729581

Richard Baldwin

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Anthony J. Venables

University of Oxford ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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