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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
11752.
Length: Date of creation: Nov 2005 Date of revision: Handle: RePEc:nbr:nberwo:11752
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Pol Antràs & Elhanan Helpman, 2003.
"Global Sourcing,"
NBER Working Papers
10082, National Bureau of Economic Research, Inc.
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