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Abstract

This paper studies a simple model of buyer investment and its effect on the variety and vertical structure of international trade. A distinction is made between two types of buyer investment: "flexible" and "specific." Their interactions with the entry and pricing incentives of suppliers are analyzed. It is shown that (i) there can be multiple equilibria in the variety of products traded, and (ii) less product variety is associated with more intrafirm trade. The possibility of multiple equilibria is consistent with the observation that some similar economies, such as Taiwan and South Korea, differ substantially in their export varieties to the U.S. A formal empirical analysis confirms the negative correlation between product variety and intrafirm trade.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11752.

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Date of creation: Nov 2005
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Handle: RePEc:nbr:nberwo:11752

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Find related papers by JEL classification:

• F1 - International Economics - - Trade

This paper has been announced in the following NEP Reports:

• NEP-ALL-2005-11-19 (All new papers)
• NEP-BEC-2005-11-19 (Business Economics)
• NEP-COM-2005-11-19 (Industrial Competition)
• NEP-INT-2005-11-19 (International Trade)

References

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Cited by:

1. Robert C. Feenstra & Barbara J. Spencer, 2005. "Contractual Versus Generic Outsourcing: The Role of Proximity," NBER Working Papers 11885, National Bureau of Economic Research, Inc.

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