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Intermediate Inputs and External Economies

Author

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  • Haiwen Zhou

    (Department of Economics, Old Dominion University, Norfolk, VA 23529, USA)

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 the 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 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

  • Haiwen Zhou, 2014. "Intermediate Inputs and External Economies," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 9(2), pages 216-239, June.
    • Handle: RePEc:fec:journl:v:9:y:2014:i:2:p:216-239
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    File URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-003-014-0012-1
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    Cited by:

    1. Haiwen Zhou, 2024. "National integration and institution building," Pacific Economic Review, Wiley Blackwell, vol. 29(1), pages 26-43, February.
    2. Zhou, Haiwen, 2025. "Impact of Geography on Institutions in Agricultural and Nomadic Societies," MPRA Paper 126510, University Library of Munich, Germany.
    3. 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.
    4. Christopher Colburn & Haiwen Zhou, 2022. "The partition of production between households and markets," International Studies of Economics, John Wiley & Sons, vol. 17(1), pages 21-35, June.

    More about this item

    Keywords

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    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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