Part III: Fragmentation of the Production Process and International Trade

Chapter 13 begins with the statement: “The bulk of international trade consists of the exchange of intermediate products, raw materials, and goods which require further local processing before reaching the final consumer.” The first diagram (not Fig. 13.1) suggests why, in the production process, the international trade that takes place between (or among) countries is referred to here as “trade in middle products.” In the early stages of the production process (that we called the Input Tier), local labor and local resources produce goods that enter into the trading process (although some are kept back for use at home) to exchange for other middle products. The array of middle products in the Output Tier of the economy is then joined by local labor further to process the production of final consumption goods to satisfy local consumption demands. The chapter then continues with formal explanations of various elasticities and demand changes. The Appendix adds more formal touches…