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International trade, flexible manufacturing, and outsourcing

  • Carsten Eckel

This study analyzes the impact of opening up markets on the diffusion of flexible manufacturing in a general equilibrium framework. With flexible manufacturing, suppliers can service a range of downstream industries and do not have to be concerned about being held up. Instead, the vertical structure is determined by the trade-off between economies of scale in flexible manufacturing and product specificity of in-house production. The analysis derives a number of testable predictions with regard to firm size and productivity measures and shows that globalization can lead to a consolidation in upstream markets, lower real wages, and reduce welfare.

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Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 42 (2009)
Issue (Month): 4 (November)
Pages: 1449-1472

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Handle: RePEc:cje:issued:v:42:y:2009:i:4:p:1449-1472
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  1. Ethier, Wilfred, 1979. "Internationally decreasing costs and world trade," Journal of International Economics, Elsevier, vol. 9(1), pages 1-24, February.
  2. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  3. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
  4. Tybout, James R. & Westbrook, M. Daniel, 1995. "Trade liberalization and the dimensions of efficiency change in Mexican manufacturing industries," Journal of International Economics, Elsevier, vol. 39(1-2), pages 53-78, August.
  5. Gene M. Grossman & Elhanan Helpman, 2002. "Integration Versus Outsourcing In Industry Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 85-120, February.
  6. Eaton, B Curtis & Schmitt, Nicolas, 1994. "Flexible Manufacturing and Market Structure," American Economic Review, American Economic Association, vol. 84(4), pages 875-88, September.
  7. Donald Gerwin, 1993. "Manufacturing Flexibility: A Strategic Perspective," Management Science, INFORMS, vol. 39(4), pages 395-410, April.
  8. Helpman, Elhanan, 1981. "International trade in the presence of product differentiation, economies of scale and monopolistic competition : A Chamberlin-Heckscher-Ohlin approach," Journal of International Economics, Elsevier, vol. 11(3), pages 305-340, August.
  9. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  10. John McLaren, 2000. ""Globalization" and Vertical Structure," American Economic Review, American Economic Association, vol. 90(5), pages 1239-1254, December.
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