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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. David Hummels & Jun Ishii & Kei-Mu Yi, 1999. "The nature and growth of vertical specialization in world trade," Staff Reports 72, Federal Reserve Bank of New York.
  2. Venables, Anthony J., 1993. "Equilibrium Locations of Vertically Linked Industries," CEPR Discussion Papers 802, C.E.P.R. Discussion Papers.
  3. J. Peter Neary, 2000. "Of Hype and Hyperbolas - Introducing the new Economic Geography," Working Papers 200019, School Of Economics, University College Dublin.
  4. 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, issue Jun, pages 79-99.
  5. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  6. Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476, December.
  7. Paul Krugman & Anthony J. Venables, 1995. "Globalization and the Inequality of Nations," NBER Working Papers 5098, National Bureau of Economic Research, Inc.
  8. Ottaviano, Gianmarco Ireo Paolo & Robert-Nicoud, Frédéric, 2004. "The 'Genome' of NEG Models with Vertical Linkages: A Positive and Normative Synthesis," CEPR Discussion Papers 4600, C.E.P.R. Discussion Papers.
  9. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  10. K.H. Midelfart & H.G. Overman & S.J. Redding & A.J. Venables, 2000. "The location of European industry," European Economy - Economic Papers 142, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  11. repec:fth:iniesr:430 is not listed on IDEAS
  12. Rivera-Batiz, Francisco L., 1988. "Increasing returns, monopolistic competition, and agglomeration economies in consumption and production," Regional Science and Urban Economics, Elsevier, vol. 18(1), pages 125-153, February.
  13. repec:fth:eeccco:142 is not listed on IDEAS
  14. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
  15. Yeats, Alexander J., 1998. "Just how big is global production sharing?," Policy Research Working Paper Series 1871, The World Bank.
  16. Markusen, James R, 1989. "Trade in Producer Services and in Other Specialized Intermediate Inputs," American Economic Review, American Economic Association, vol. 79(1), pages 85-95, March.
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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 59, University of Lüneburg, Institute of Economics.

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