International Fragmentation, Skill Formation and Emigration: A General Equilibrium Approach

Abstract

This article departs from only conventional trade in final goods and focuses on the incentive that induces the producers of final goods to import raw materials from abroad instead of using domestically produced intermediate goods. The article then explores the plausible impact of skill formation and emigration of both unskilled and skilled labour on the incentive for fragmentation. The results suggest that a drive towards skill formation expands the zone of international fragmentation. Again, emigration of either type of labour usually reduces the incentive to fragment the production process. The effect on the overall volume of imports depends on the degree of complementarity between factors of production like skilled labour and foreign capital. Not only does the article capture the trade-off between emigration and skill formation and their opposite impact on the zone of fragmentation, but it also captures the linkage between the emigration of unskilled workers and their skill formation by introducing the concept of ‘unskilled-pushed skilled emigration’. JEL Classification: F11, F12, F16, F22