Tasks, Occupations, and Slowbalization: On the Limits of Fragmentation

Following the trade collapse in 2009, Globalization has recovered but the growth rate slowed down compared to the preceding period of Hyper Globalization. The persistence of this slowdown is remarkable. We argue that increased awareness of firms for the costs of involvement in global supply chains can explain the recent developments in trade flows. We formalize the existence, length, and consequences of changes in fragmentation cost along global supply chains. From a theoretical point of view, the model endogenizes production fragmentation, allowing for multiple production stages in multiple countries, while remaining tractable. From an empirical point of view, the model explains both, the period of Hyper Globalization and the subsequent Slowbalization in terms of changing fragmentation costs along global supply chains. The model is also consistent with developments regarding labor market polarization associated with modern globalization: the labor market position of medium-skilled workers in advanced countries has deteriorated relative to high- and low- skilled workers, which can be understood by changing global supply chains. Our model implies, however, that even with zero fragmentation costs the demand for certain occupations does not fall to zero for any country.