Business Intelligence

Relocating The Value Chain: Offshoring And Agglomeration In The Global Economy

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Executive Summary

Fragmentation of stages of the production process is determined by international cost differences and by the benefits of co-location of related stages. The interaction between these forces depends on the technological relationships between these stages. This paper looks at both cost minimizing and equilibrium off shoring under different technological configurations. Reductions in trade costs beyond a threshold can result in discontinuous changes in location, with relocation of a wide range of production stages. There can be overshooting and equilibrium may involve less off-shoring than is efficient.

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