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Cost Competition, Fragmentation, and Globalization

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  • Burda, Michael C
  • Dluhosch, Barbara

Abstract

This paper proposes a model in which the removal of barriers to trade and factor mobility is associated with endogenous fragmentation of the value-added chain. Fragmentation is the outcome of cost competition--the profit-maximizing choice of cost structure by monopolistically competitive firms. An expansion of the integrated trading area can induce globalization not only in the horizontal dimension associated with love-of-variety preferences, but also vertically as firms vary specialization of production stages. While increased trade is likely to induce fragmentation when the number of firms is fixed, free entry can either reverse or intensify this result. Copyright 2002 by Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 10 (2002)
Issue (Month): 3 (August)
Pages: 424-41

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Handle: RePEc:bla:reviec:v:10:y:2002:i:3:p:424-41

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Citations

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Cited by:
  1. Toshiharu Ishikawa, 2010. "Effects of retail market structure and production conditions on firm’s location selections of fragmented production process," Jahrbuch für Regionalwissenschaft, Springer, vol. 30(2), pages 91-103, September.
  2. Sandén, Klas, 2007. "Market Imperfections and Wage Inequality," Working Papers in Economics 264, University of Gothenburg, Department of Economics.
  3. Ronald B. Davies, 2003. "Fragmentation of Headquarter Services and FDI," University of Oregon Economics Department Working Papers 2003-25, University of Oregon Economics Department, revised 01 Sep 2003.
  4. Henk Kox & Luis Rubalcaba, 2007. "Business services and the changing structure of European economic growth," CPB Memorandum 183, CPB Netherlands Bureau for Economic Policy Analysis.
  5. Henk Kox & Luis Rubalcaba, 2007. "Analysing the Contribution of Business Services to European Economic Growth," Bruges European Economic Research Papers 9, European Economic Studies Department, College of Europe.
  6. Burda, Michael C. & Dluhosch, Barbara, 2001. "Fragmentation, globalization and labor markets," SFB 373 Discussion Papers 2001,41, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  7. Ekholm, Karolina & Midelfart, Karen Helene, 2005. "Relative wages and trade-induced changes in technology," European Economic Review, Elsevier, vol. 49(6), pages 1637-1663, August.
  8. C. Alyson, 2006. "On the choice of in-house production versus outsourcing by multinationals," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 15(2), pages 231-254.
  9. Horgos, Daniel, 2009. "Labor market effects of international outsourcing: How measurement matters," International Review of Economics & Finance, Elsevier, vol. 18(4), pages 611-623, October.
  10. Hartmut Egger & Peter Egger, 2004. "Outsourcing and Trade in a Spatial World," CESifo Working Paper Series 1349, CESifo Group Munich.
  11. Ines Buono & Filippo Vergara Caffarelli, 2013. "Trade elasticity and vertical specialisation," Temi di discussione (Economic working papers) 924, Bank of Italy, Economic Research and International Relations Area.
  12. Hartmut Egger & Josef Falkinger, 2003. "The Role of Public Infrastructure for Firm Location and International Outsourcing," CESifo Working Paper Series 970, CESifo Group Munich.
  13. James, Harvey S., Jr., 2003. "Farming For Ethics: An Examination Of The Ethical Challenges Of Missouri Corn And Soybean Producers," Working Papers 26036, University of Missouri Columbia, Department of Agricultural Economics.
  14. Sandén, Klas, 2007. "Shutdown Threats, Firm Fragmentation and the Skill Premium," Working Papers in Economics 265, University of Gothenburg, Department of Economics.
  15. Dluhosch, Barbara, 2006. "Intraindustry trade and the gains from fragmentation," The North American Journal of Economics and Finance, Elsevier, vol. 17(1), pages 49-64, March.
  16. Carsten Ochsen & Heinz Welsch, 2005. "Technology, trade, and income distribution in West Germany: A factor-share analysis, 1976-1994," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 321-345, November.

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