Specialization and Gains from Trade

Published: 2021-09-14 10:10:10
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Category: Science

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An important facet of "globalization" is the spread of cross-border production,
which is variously known as intra-product specialization, super-specialization, or
production fragmentation. This advanced stage in the international division of labor
works particularly well between high-wage developed and low-wage emerging
economies. But it is precisely this context in which the practice has been criticized for
destroying jobs and undermining wages.
This paper examines the welfare implications of this type of specialization on the
part of labor-intensive, import-competing industries in advanced countries. The
results will surprise the skeptics, for when import-competing industries abandon
production of labor-intensive components, wages rise and industry employment and
output expand. National welfare increases, For a large country, the terms of trade
improve, raising national welfare still further. (JEL F11, F23)
Around the globe, countries are being drawn
ever more fully into the international trading
system. In part, this merely reflects processes
that have been underway for many years, but
there are elements in the current phase of
"globalization" that differentiate it from past
episodes. One of those is the growing
importance of what used to be called offshore
sourcing, but is also known as intraproduct
specialization, super-specialization, or
production fragmentation.
This paper examines the effect of super-spe-
cialization on wages, employment, output, and
national welfare. The findings will be surpris ing
to many, for intra-product specialization on the
part of import-competing, labor-intensive sectors
in high-wage countries increases industry
employment and output, raises wages, and
advances national welfare. If it generates terms
*This is a revised version of a paper presented at the
Western Economic Association International 72nd Annual
Conference, Seattle, Wash., July 1997. Helpful discussions with
Henryk Kierzkowski and comments from participants at the
Claremont workshop on "Globalization," at the University of

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