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Intermediate Inputs and External Economies

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  • Zhou, Haiwen

Abstract

Is the degree of external economies (at the industry level) higher than the degree of internal increasing returns (at the firm level)? If so, what is the exact source of this difference? In this general equilibrium model in which firms producing final goods choose the degree of specialization of their technologies, external economies arise from the usage of intermediate inputs and the existence of internal increasing returns. It is frequently assumed that increasing returns are absent at the firm level while are present at the industry level. In this model, the existence of increasing returns at the firm level is necessary for the existence of external economies at the industry level. We show that the degree of external economies increases with the level of linkage effects. However, a higher linkage effect does not always lead firms to choose more specialized technologies.

Suggested Citation

  • Zhou, Haiwen, 2017. "Intermediate Inputs and External Economies," MPRA Paper 81942, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:81942
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    References listed on IDEAS

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    1. James R. Markusen, 1990. "Micro-foundations of External Economies," Canadian Journal of Economics, Canadian Economics Association, vol. 23(3), pages 495-508, August.
    2. Haiwen Zhou, 2007. "Increasing Returns, the Choice of Technology, and the Gains from Trade," Southern Economic Journal, John Wiley & Sons, vol. 74(2), pages 581-600, October.
    3. Junxi Zhang, 2007. "Endogenous Markups, Intensity of Competition, and Persistence of Business Cycles," Southern Economic Journal, John Wiley & Sons, vol. 74(2), pages 546-565, October.
    4. Haiwen Zhou, 2004. "The division of labor and the extent of the market," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 24(1), pages 195-209, July.
    5. Haiwen Zhou, 2011. "Economic Systems and Economic Growth," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 39(3), pages 217-229, September.
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    15. Haiwen Zhou, 2007. "Increasing Returns, the Choice of Technology, and the Gains from Trade," Southern Economic Journal, John Wiley & Sons, vol. 74(2), pages 581-600, October.
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    Cited by:

    1. Haiwen Zhou, 2019. "Coordination Costs, Market Size, and the Choice of Technology," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 14(1), pages 131-148, March.
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    3. Colburn, Christopher & Zhou, Haiwen, 2021. "The Partition of Production between Households and Markets," MPRA Paper 107158, University Library of Munich, Germany.

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    More about this item

    Keywords

    External economies; internal increasing returns; linkage effects; choice of technology; oligopolistic competition;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General

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