The Bazaar Effect, Unbundling of Comparative Advantage, and Migration

Wilhelm Köhler

52 citations0/0 files storedWorld Scientific Studies in International Economics

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Global trade and economics Migration and Labor Dynamics Global Trade and Competitiveness

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.

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