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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
Date of revision:
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. Hartmut Egger & Peter Egger, 2004. "Outsourcing and Trade in a Spatial World," CESifo Working Paper Series 1349, CESifo Group Munich.
  2. Kox, Henk L.M. & Rubalcaba, Luis, 2007. "Business services and the changing structure of European economic growth," MPRA Paper 3750, University Library of Munich, Germany.
  3. 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.
  4. Sandén, Klas, 2007. "Market Imperfections and Wage Inequality," Working Papers in Economics 264, University of Gothenburg, Department of Economics.
  5. 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.
  6. 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.
  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. Hartmut Egger & Josef Falkinger, 2003. "The Role of Public Infrastructure for Firm Location and International Outsourcing," CESifo Working Paper Series 970, CESifo Group Munich.
  9. 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.
  10. 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.
  11. 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.
  12. Ekholm, Karolina & Ulltveit-Moe, Karen-Helene, 2001. "Relative Wages and Trade-Induced Changes in Technology," CEPR Discussion Papers 2677, C.E.P.R. Discussion Papers.
  13. 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.
  14. Sandén, Klas, 2007. "Shutdown Threats, Firm Fragmentation and the Skill Premium," Working Papers in Economics 265, University of Gothenburg, Department of Economics.
  15. 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.
  16. 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.

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