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Buyer Investment, Product Variety, and Intrafirm Trade

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  • Robert C. Feenstra
  • Yongmin Chen

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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Publication status: published as Chen, Yongmin & Feenstra, Robert C., 2008. "Buyer investment, export variety, and intrafirm trade," European Economic Review, Elsevier, vol. 52(8), pages 1313-1337, November.
Handle: RePEc:nbr:nberwo:11752

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  1. Volker Nocke & Stephen Yeaple, 2008. "An Assignment Theory of Foreign Direct Investment," Review of Economic Studies, Oxford University Press, vol. 75(2), pages 529-557.
  2. Robert C. Feenstra & Hiau Looi Kee, 2004. "Export Variety and Country Productivity," NBER Working Papers 10830, National Bureau of Economic Research, Inc.
  3. Pol Antras & Elhanan Helpman, 2003. "Global Sourcing," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 2005, Harvard - Institute of Economic Research.
  4. Grossman, Sanford J. & Hart, Oliver D., 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Scholarly Articles 3450060, Harvard University Department of Economics.
  5. repec:hrv:faseco:4784029 is not listed on IDEAS
  6. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output Per Worker Than Others?," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 114(1), pages 83-116, February.
  7. Antras, Pol, 2003. "Firms, Contracts, and Trade Structure," Scholarly Articles 3196328, Harvard University Department of Economics.
  8. 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, Elsevier, vol. 48(1), pages 71-100, June.
  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, Canadian Economics Association, vol. 34(2), pages 430-447, May.
  10. McLaren, J., 1996. "'Globalization' and Vertical Structure," Discussion Papers, Columbia University, Department of Economics 1996_21, Columbia University, Department of Economics.
  11. William J. Zeile, 2003. "Trade in Goods Within Multinational Companies: Survey-Based Data and Findings for the United States of America," BEA Papers, Bureau of Economic Analysis 0033, Bureau of Economic Analysis.
  12. 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.
  13. Mark A. Planting & Jiemin Guo, 2002. "Increasing the Timeliness of U.S. Annual I-O Accounts," BEA Papers, Bureau of Economic Analysis 0022, Bureau of Economic Analysis.
  14. Feenstra, Robert C, 1994. "New Product Varieties and the Measurement of International Prices," American Economic Review, American Economic Association, American Economic Association, vol. 84(1), pages 157-77, March.
  15. Joskow, Paul L, 1987. "Contract Duration and Relationship-Specific Investments: Empirical Evidence from Coal Markets," American Economic Review, American Economic Association, American Economic Association, vol. 77(1), pages 168-85, March.
  16. Yongmin Chen, 2006. "Marketing Innovation," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 15(1), pages 101-123, 03.
  17. Sato, Kazuo, 1976. "The Ideal Log-Change Index Number," The Review of Economics and Statistics, MIT Press, vol. 58(2), pages 223-28, May.
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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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