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Globalization and Relocation in a Vertically Differentiated Industry

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  • Isabel Grilo
  • Tito Cordella

Abstract

This paper uses a vertical differentiation duopoly framework to analyze firms’ relocation decisions, when the removal of trade barriers or restrictions on capital outflows or inflows (“globalization”) allows them to serve the domestic market through foreign plants in low-wage countries. The relocation of the entire industry yields net welfare costs, but the relocation of one (and only one) firm, may be welfare improving. When the economy is “high-(or low-) quality biased,” the relocation of the firm producing the high- (or low-) quality variant is preferred, on welfare terms, to that of other firms, if the wage differential is large enough.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 98/48.

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Length: 20
Date of creation: 01 Apr 1998
Date of revision:
Handle: RePEc:imf:imfwpa:98/48

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Cited by:
  1. Cordella, Tito & Grilo, Isabel, 1998. "'Social Dumping' and Relocation: Is there a Case for Imposing a Social Clause?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1931, C.E.P.R. Discussion Papers.
  2. José Azevedo-Pereira & Gualter Couto & Cláudia Nunes, 2010. "Optimal timing of relocation," International Journal of Managerial Finance, Emerald Group Publishing, Emerald Group Publishing, vol. 6(2), pages 143-163, April.
  3. Mary Amiti & Shang-Jin Wei, 2005. "Service offshoring, Productivity, and Employment," IMF Working Papers 05/238, International Monetary Fund.
  4. Mary Amiti & Shang-Jin Wei, 2006. "Service Offshoring and Productivity: Evidence from the United States," NBER Working Papers 11926, National Bureau of Economic Research, Inc.
  5. Pennings, Enrico & Sleuwaegen, Leo, 2000. "International relocation: firm and industry determinants," Economics Letters, Elsevier, Elsevier, vol. 67(2), pages 179-186, May.
  6. Amiti, Mary & Wei, Shang-Jin, 2006. "Service Offshoring, Productivity and Employment: Evidence from the US," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5475, C.E.P.R. Discussion Papers.
  7. Barba Navaretti, Giorgio & Falzoni, Anna M & Turrini, Alessandro Antonio, 2000. "The Decision To Invest In A Low-Wage Country: Evidence From Italian Textiles And Clothing Multinationals," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2395, C.E.P.R. Discussion Papers.

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