The Bazaar Effect, Unbundling of Comparative Advantage, and Migration

48 Pages Posted: 7 Mar 2007

See all articles by Wilhelm Kohler

Wilhelm Kohler

University of Tuebingen - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: February 2007

Abstract

Germany exhibits a strong reduction in domestic manufacturing production depth (bazaar effect). I argue that this reflects an unbundling of comparative advantage. Using a model where Ricardian plus Heckscher-Ohlin-type comparative advantage relates to fragments of production, I compare a trading equilibrium where all fragments are located within a country with an equilibrium where input sub-bundles may be traded (offshoring). The model allows for several goods and two fragments, produced with high-skilled and low-skilled labor. I address wage and welfare effects under flexible wages, and under a minimum wage. I also explore trade policy implications and compare offshoring to migration.

Keywords: comparative advantage, offshoring, outsourcing, globalization, migration

JEL Classification: F11, F16, F22

Suggested Citation

Kohler, Wilhelm K., The Bazaar Effect, Unbundling of Comparative Advantage, and Migration (February 2007). CESifo Working Paper Series No. 1932, Available at SSRN: https://ssrn.com/abstract=968617 or http://dx.doi.org/10.2139/ssrn.968617

Wilhelm K. Kohler (Contact Author)

University of Tuebingen - Department of Economics ( email )

Mohlstrasse 36
D-72074 Tuebingen, 72074
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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