This paper investigates the effects of subnational regionalization on a country's terms of trade, trade patterns and its welfare. We show that a country can gain from dividing itself into two regions with different factor ratios (and preclude the cross‐region factor mobility). Allowing a region in a country to have a comparative advantage different from the country as a whole can generate a welfare‐improving terms‐of‐trade effect, which is reminiscent of immiserizing growth in reverse. Our simple model can provide a justification for “self‐sufficiency” programs or “special industry zone” policies in some developing countries. We also show that subnational regionalization can reduce the volume of trade and or even reverse countries' trade patterns. This finding could provide an alternative explanation for the missing trade problem and the paradox between trade patterns predicted by the standard Heckscher–Ohlin comparative advantage model and those found empirically.