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Cost Competition, Fragmentation and Globalization

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  • Barbara Dluhosch
  • Michael Burda

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 com-petitive 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 in a vertical dimension as firms vary specialization of production stages. While increased trade is likely to in-duce fragmentation when the number of firms is fixed, free entry can either reverse or intensify this result.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2000/wp-cesifo-2000-12/cesifo_wp393.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 393.

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Date of creation: 2000
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Handle: RePEc:ces:ceswps:_393

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Keywords: International trade; organization of production; technology choice; division of labor;

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References

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Citations

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Cited by:
  1. Sandén, Klas, 2007. "Shutdown Threats, Firm Fragmentation and the Skill Premium," Working Papers in Economics 265, University of Gothenburg, Department of Economics.
  2. 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.
  3. Ines Buono & Filippo Vergara Caffarelli, 2013. "Trade elasticity and vertical specialisation," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 924, Bank of Italy, Economic Research and International Relations Area.
  4. Davies, Ronald B., 2005. "Fragmentation of headquarter services and FDI," The North American Journal of Economics and Finance, Elsevier, vol. 16(1), pages 61-79, March.
  5. Henk Kox & Luis Rubalcaba, 2007. "Business services and the changing structure of European economic growth," CPB Memorandum, CPB Netherlands Bureau for Economic Policy Analysis 183, CPB Netherlands Bureau for Economic Policy Analysis.
  6. 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.
  7. 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.
  8. 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.
  9. Michael Burda & Barbara Dluhosch, 2000. "Fragmentation, Globalization and Labor Markets," CESifo Working Paper Series 352, CESifo Group Munich.
  10. Horgos, Daniel, 2007. "Labor Market Effects of International Outsourcing: How Measurement Matters," Working Paper 62/2007, Helmut Schmidt University, Hamburg.
  11. Hartmut Egger & Josef Falkinger, 2003. "The Role of Public Infrastructure for Firm Location and International Outsourcing," CESifo Working Paper Series 970, CESifo Group Munich.
  12. Hartmut Egger & Peter Egger, 2004. "Outsourcing and Trade in a Spatial World," CESifo Working Paper Series 1349, CESifo Group Munich.
  13. Kox, Henk L.M. & Rubalcaba, Luis, 2007. "Analysing the contribution of business services to European economic growth," MPRA Paper 2003, University Library of Munich, Germany.
  14. C. Alyson, 2006. "On the choice of in-house production versus outsourcing by multinationals," The Journal of International Trade & Economic Development, Taylor & Francis Journals, Taylor & Francis Journals, vol. 15(2), pages 231-254.
  15. Sandén, Klas, 2007. "Market Imperfections and Wage Inequality," Working Papers in Economics 264, University of Gothenburg, Department of Economics.
  16. 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.

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