NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Expansion of Trade at the Extensive Margin: A General Gains-from-Trade Result and Illustrative Examples

James R. Markusen

NBER Working Paper No. 15926
Issued in April 2010
NBER Program(s):   ITI

The basic gains-from-trade theorem makes a stark comparison between completely free trade and complete autarky. This paper is motivated by recent evidence that trade has greatly expanded on the extensive margin (aka fragmentation, offshoring) by adding newly traded goods and services and that much of this new trade is in intermediates. I provide an extension of existing gains-from-trade results by allowing trade in an added set of final and/or intermediate goods. As seems generally understood, a sufficient condition for all countries to gain from fragmentation is that the relative world prices of initially-trade goods don't change. However, trade costs break the strict link between domestic and world prices in my approach and this results in interesting subtleties as initially-traded goods change their trade status following fragmentation. I illustrate these results by applying them to two recent and quite specific formulations of expansion at the extensive margin: Grossman and Rossi-Hansberg (2008) and Markusen and Venables (2007). Symmetry in two senses results in gains for all countries: countries are relatively symmetric in size and the newly-traded goods are relatively symmetric in their factor intensities with respect to the world endowment ratio.

download in pdf format
   (311 K)

email paper

This paper is available as PDF (311 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w15926

Published: Markusen, James R., 2013. "Expansion of trade at the extensive margin: A general gains-from-trade result and illustrative examples," Journal of International Economics, Elsevier, vol. 89(1), pages 262-270. citation courtesy of

Users who downloaded this paper also downloaded these:
Markusen w15903 Putting Per-Capita Income Back into Trade Theory
Baldwin and robert-nicoud w15882 Trade-in-goods and trade-in-tasks: An Integrating Framework
Bernard, Jensen, Redding, and Schott w15881 Intra-firm Trade and Product Contractibility (Long Version)
Bernard, Jensen, Redding, and Schott w14662 The Margins of U.S. Trade (Long Version)
Brambilla, Lederman, and Porto w15995 Exports, Export Destinations, and Skills
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us