Foreign Direct Investment and International Fragmentation of Production

Abstract

Abstract Recently, increasing attention has been given to the phenomenon of international fragmentation of production and its impact on international trade, wage, employment, and welfare. International fragmentation arises when the multiple stages of a good’s production take place in two or more countries. It is similar in meaning to globalization, outsourcing, and intra-product specialization. The high costs of international coordination, communication, and transportation were crucial obstacles to international fragmentation in the past, and technological improvements in these areas are widely recognized as an important reason for the recent surge in fragmentation.

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