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Business Groups and Trade in East Asia: Part 1, Networked Equilibria

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  • Robert C. Feenstra
  • Deng-Shing Huang
  • Gary G. Hamilton

Abstract

We propose an economic model of business groups that allows for the cooperative behavior of groups of firms, where the number and size of each group is determined endogenously. In this framework, more than one configuration of groups can arise in equilibrium: several different types of business groups can occur, each of which is consistent with profit-maximization and is stable. This means that the economic logic does not fully determine the industrial structure, leaving scope for political and sociological factors to have a lasting influence. In a companion paper, we argue that the differing structures of business groups found in South Korea, Taiwan and Japan fit the stylized results from the model, and contrast the impact of these groups on the product variety of their country exports to the United States.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5886.

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Date of creation: Jan 1997
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Publication status: Published as "Business Groups and Product Variety in Trade: Evidence from South Korea, Taiwan, and Japan", Journal of International Economics, Vol. 47, no. 2 (April 1999).
Handle: RePEc:nbr:nberwo:5886

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  1. Feenstra, R.C. & Yang, T.H. & Hamilton, G.G., 1993. "Market Structure and International Trade: Business Groups in East Asia," Papers, California Davis - Institute of Governmental Affairs 93-23, California Davis - Institute of Governmental Affairs.
  2. Ariel Pakes & Paul McGuire, 1994. "Computing Markov-Perfect Nash Equilibria: Numerical Implications of a Dynamic Differentiated Product Model," RAND Journal of Economics, The RAND Corporation, vol. 25(4), pages 555-589, Winter.
  3. 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.
  4. Greif, Avner, 1994. "Cultural Beliefs and the Organization of Society: A Historical and Theoretical Reflection on Collectivist and Individualist Societies," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 102(5), pages 912-50, October.
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Cited by:
  1. McLaren, J., 1996. "'Globalization' and Vertical Structure," Discussion Papers, Columbia University, Department of Economics 1996_21, Columbia University, Department of Economics.
  2. Groot, H.L.F. de, 1998. "Macroeconomic Consequences of Outsourcing. An Analysis of Growth, Welfare and Product Variety," Discussion Paper, Tilburg University, Center for Economic Research 1998-43, Tilburg University, Center for Economic Research.
  3. Feenstra, Robert C. & Madani, Dorsati & Yang, Tzu-Han & Liang, Chi-Yuan, 1999. "Testing endogenous growth in South Korea and Taiwan," Journal of Development Economics, Elsevier, Elsevier, vol. 60(2), pages 317-341, December.
  4. Spencer, Barbara J & Qiu, Larry D, 2001. "Keiretsu and Relationship-Specific Investment: A Barrier to Trade?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 871-901, November.
  5. Joaquim Oliveira-Martins & Tito Boeri, 2002. "Transition, variété des produits et intégration économique," Économie et Prévision, Programme National Persée, Programme National Persée, vol. 152(1), pages 55-69.
  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, Elsevier, vol. 48(1), pages 71-100, June.

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