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The Strength of Vertical Linkages

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  • Jan Kranich

    ()
    (Institute of Economics, University of Lüneburg)

Abstract

This paper discusses the interdenpendencies that exist between vertically-linked industries in the (Spence-)Dixit-Stiglitz model of monopolistic competition. The main objective is to develop a concept for quantifying the magnitude of sectoral coherence in models of the New Economic Geography. It is motivated by the suggestion, by Venables (1996), that `strategic industries` be identified in terms of their agglomeration potential. Using a partial-analytic approach, we focus on inter-industrial relations in a closed economy to draw conclusions regarding international trade. We ascertain that two factors have an impact upon the strength of industrial linkages: 1) the monopolistic scope of intermediate suppliers, in terms of (technical) substitution elasticity; and the share in downstream costs for intermediates. Within a simulation study, this paper applies this new theoretical concept to eight basic industries across ten European countries.

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Bibliographic Info

Paper provided by University of Lüneburg, Institute of Economics in its series Working Paper Series in Economics with number 20.

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Length: 38 pages
Date of creation: 19 Jul 2006
Date of revision:
Handle: RePEc:lue:wpaper:20

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Related research

Keywords: New Economic Geography; Vertical Linkages;

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References

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  1. Yeats, Alexander J., 1998. "Just how big is global production sharing?," Policy Research Working Paper Series 1871, The World Bank.
  2. David Hummels & Jun Ishii & Kei-Mu Yi, 1999. "The nature and growth of vertical specialization in world trade," Staff Reports, Federal Reserve Bank of New York 72, Federal Reserve Bank of New York.
  3. Ottaviano, Gianmarco Ireo Paolo & Robert-Nicoud, Frédéric, 2004. "The 'Genome' of NEG Models with Vertical Linkages: A Positive and Normative Synthesis," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4600, C.E.P.R. Discussion Papers.
  4. repec:fth:eeccco:142 is not listed on IDEAS
  5. Krugman, Paul & Venables, Anthony J., 1995. "Globalization and the Inequality of Nations," Working Paper Series, Research Institute of Industrial Economics 430, Research Institute of Industrial Economics.
  6. Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262561476, December.
  7. K.H. Midelfart & H.G. Overman & S.J. Redding & A.J. Venables, 2000. "The location of European industry," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 142, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  8. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  9. David Hummels & Dana Rapoport & Kei-Mu Yi, 1998. "Vertical specialization and the changing nature of world trade," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue Jun, pages 79-99.
  10. Venables, Anthony J, 1996. "Equilibrium Locations of Vertically Linked Industries," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(2), pages 341-59, May.
  11. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(3), pages 483-99, June.
  12. J. Peter Neary, 2000. "Of Hype and Hyperbolas - Introducing the new Economic Geography," Working Papers, School Of Economics, University College Dublin 200019, School Of Economics, University College Dublin.
  13. Markusen, James R, 1989. "Trade in Producer Services and in Other Specialized Intermediate Inputs," American Economic Review, American Economic Association, American Economic Association, vol. 79(1), pages 85-95, March.
  14. repec:fth:iniesr:430 is not listed on IDEAS
  15. Rivera-Batiz, Francisco L., 1988. "Increasing returns, monopolistic competition, and agglomeration economies in consumption and production," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 18(1), pages 125-153, February.
  16. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, American Economic Association, vol. 72(3), pages 389-405, June.
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Cited by:
  1. Jan Kranich, 2007. "Too much R&D? - Vertical differentiation in a model of monopolistic competition," Working Paper Series in Economics, University of Lüneburg, Institute of Economics 59, University of Lüneburg, Institute of Economics.

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