The word fragmentation refers to a splitting up of a vertically integrated production process such that the separate fragments can be traded on markets. This paper is concerned with international fragmentation, generally allowing gains from a finer division of labor based on comparative advantage in separate fragments. A discussion of how growth in output can encourage fragmentation because of the increasing returns nature of the service links required to coordinate separate production blocks, and how drastic reductions in the costs of these service links also encourages fragmentation is followed by a focus on internal income distribution. It is shown that a country that loses a labor-intensive fragment of a process to international competition following a reduction in costs of service links may find its real wage rising. This is especially possible in more capital-abundant countries.
