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Buyer Investment, Product Variety, and Intrafirm Trade

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Author Info
Robert C. Feenstra
Yongmin Chen

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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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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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F1 - International Economics - - Trade

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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.:
  1. Feenstra, Robert C, 1994. "New Product Varieties and the Measurement of International Prices," American Economic Review, American Economic Association, vol. 84(1), pages 157-77, March. [Downloadable!] (restricted)
  2. Antràs, Pol & Helpman, Elhanan, 2004. "Global Sourcing," CEPR Discussion Papers 4170, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  3. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. David Hummels & Peter J. Klenow, 2002. "The Variety and Quality of a Nation's Trade," NBER Working Papers 8712, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Feenstra, Robert & Hiau Looi Kee, 2004. "Export variety and country productivity," Policy Research Working Paper Series 3412, The World Bank. [Downloadable!]
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  6. Feenstra, Robert C. & Yang, Tzu-Han & Hamilton, Gary G., 1999. "Business groups and product variety in trade: evidence from South Korea, Taiwan and Japan," Journal of International Economics, Elsevier, vol. 48(1), pages 71-100, June. [Downloadable!] (restricted)
  7. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August. [Downloadable!] (restricted)
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  8. Pol Antràs, 2003. "Firms, Contracts, And Trade Structure," The Quarterly Journal of Economics, MIT Press, vol. 118(4), pages 1375-1418, November. [Downloadable!] (restricted)
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  9. Robert C. Feenstra & James R. Markusen & Andrew K. Rose, 2001. "Using the gravity equation to differentiate among alternative theories of trade," Canadian Journal of Economics, Canadian Economics Association, vol. 34(2), pages 430-447, May. [Downloadable!] (restricted)
  10. John McLaren, 2000. ""Globalization" and Vertical Structure," American Economic Review, American Economic Association, vol. 90(5), pages 1239-1254, December. [Downloadable!] (restricted)
  11. Yongmin Chen, 2006. "Marketing Innovation," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 15(1), pages 101-123, 03. [Downloadable!] (restricted)
  12. Volker Nocke & Stephen Yeaple, 2004. "An Assignment Theory of Foreign Direct Investment," NBER Working Papers 11003, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Sato, Kazuo, 1976. "The Ideal Log-Change Index Number," The Review of Economics and Statistics, MIT Press, vol. 58(2), pages 223-28, May. [Downloadable!] (restricted)
  14. Joskow, Paul L, 1987. "Contract Duration and Relationship-Specific Investments: Empirical Evidence from Coal Markets," American Economic Review, American Economic Association, vol. 77(1), pages 168-85, March. [Downloadable!] (restricted)
  15. William J. Zeile, 2003. "Trade in Goods Within Multinational Companies: Survey-Based Data and Findings for the United States of America," BEA Papers 0022, Bureau of Economic Analysis. [Downloadable!]
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  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. [Downloadable!] (restricted)
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