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International trade, flexible manufacturing, and outsourcing

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  • Carsten Eckel

Abstract

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. Cette étude analyse l'impact d'une ouverture des marchés à la fabrication flexible dans un cadre d'équilibre général. Avec la fabrication flexible, les fournisseurs peuvent servir un éventail d'industries en aval et n'ont pas à se soucier d'être pris en otage. D'autre part, la structure verticale est déterminée par la relation d'équivalence entre les économies d'échelle dans la fabrication flexible et la spécificité des produits dans la production interne. L'analyse dérive un nombre de prévisions testables quant à la taille des firmes et aux mesures de la productivité, et montre que la mondialisation peut entraîner une consolidation des marchés en amont, des salaires réels plus bas, et une réduction du niveau de bien‐être.

Suggested Citation

  • Carsten Eckel, 2009. "International trade, flexible manufacturing, and outsourcing," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 42(4), pages 1449-1472, November.
    • Handle: RePEc:wly:canjec:v:42:y:2009:i:4:p:1449-1472
    DOI: 10.1111/j.1540-5982.2009.01552.x
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    References listed on IDEAS

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    1. Gene M. Grossman & Elhanan Helpman, 2003. "Outsourcing Versus FDI in Industry Equilibrium," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 317-327, 04/05.
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    1. Carsten Eckel, 2009. "International trade, flexible manufacturing, and outsourcing," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 42(4), pages 1449-1472, November.
    2. Inga Heiland, 2017. "Five Essays on International Trade, Factor Flows and the Gains from Globalization," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 74.
    3. Carsten Eckel & J. Peter Neary, 2010. "Multi-Product Firms and Flexible Manufacturing in the Global Economy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(1), pages 188-217.
    4. Huanlang He & Zhihao Yu, 2015. "The evolving patterns of global production of multi‐product firms," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 48(3), pages 1175-1194, August.
    5. Heiland, Inga & Kohler, Wilhelm, 2022. "Heterogeneous workers, trade, and migration," European Economic Review, Elsevier, vol. 144(C).
    6. Oliver Lorz & Matthias Wrede, 2008. "Standardization of intermediate goods and international trade," Canadian Journal of Economics, Canadian Economics Association, vol. 41(2), pages 517-536, May.
    7. Luigi Pascali, 2009. "Contract Incompleteness, Globalization and Vertical Structure: an Empirical Analysis," Boston College Working Papers in Economics 727, Boston College Department of Economics.

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    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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