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Modularity and the Organization of International Production

  • Ari Van Assche
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    In recent decades, complex manufacturing sectors such as electronics have transformed from an industry dominated by vertically integrated firms that source locally to an industry dominated by horizontally specialized firms that source globally. To account for this, we build an two-country industry-equilibrium model in which firms concurrently choose (i) a product architecture, (ii) an ownership structure and (iii) a location for production. In industries with partial input specificity and economies of scale in input production, we find that the industry transformation can be explained by a reduction in synergistic specificity, a reduction in the cost of internationalizing and an increase in industry demand. Au cours des dernières décennies, les secteurs manufacturiers complexes, tels que celui de l'électronique, se sont transformés, passant d'une industrie dominée par des firmes intégrées verticalement et s'approvisionnant localement, à une industrie dominée par des firmes spécialisées horizontalement et s'approvisionnant sur les marchés mondiaux. Pour expliquer ce phénomène, nous construisons un modèle d'équilibre industriel entre deux pays, dans lequel les entreprises choisissent simultanément (i) l'architecture du produit, (ii) la structure de propriété et (iii) le lieu de production. Dans les industries caractérisées par une spécificité partielle d'intrants et des économies d'échelle liées à la production de ceux-ci, nous constatons que la transformation qu'a connue l'industrie peut s'expliquer par une réduction de la spécificité synergique, une réduction du coût d'internationalisation et une augmentation de la demande au sein de l'industrie.

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    Paper provided by CIRANO in its series CIRANO Working Papers with number 2006s-09.

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    Length: 31 pages
    Date of creation: 01 May 2006
    Date of revision:
    Handle: RePEc:cir:cirwor:2006s-09
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    1. Barbara Spencer, 2005. "International outsourcing and incomplete contracts," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1107-1135, November.
    2. Carl Bonham & Byron Gangnes & Ari Van Assche, 2004. "Fragmentation and East Asia’s Information Technology Trade," Working Papers 200409, University of Hawaii at Manoa, Department of Economics.
    3. George J. Stigler, 1951. "The Division of Labor is Limited by the Extent of the Market," Journal of Political Economy, University of Chicago Press, vol. 59, pages 185.
    4. Oliver Hart & John Moore, 1988. "Property Rights and the Nature of the Firm," Working papers 495, Massachusetts Institute of Technology (MIT), Department of Economics.
    5. Galina A. Schwartz & Ari Van Assche, 2006. "Input Specificity and Global Sourcing," CIRANO Working Papers 2006s-02, CIRANO.
    6. Ulrich, Karl, 1995. "The role of product architecture in the manufacturing firm," Research Policy, Elsevier, vol. 24(3), pages 419-440, May.
    7. repec:tpr:qjecon:v:117:y:2002:i:1:p:85-120 is not listed on IDEAS
    8. Pol Antras, 2004. "Incomplete Contracts and the Product Cycle," 2004 Meeting Papers 19, Society for Economic Dynamics.
    9. Grossman, Sanford J & Hart, Oliver, 1985. "The Cost and Benefits of Ownership: A Theory of Vertical and Lateral Integration," CEPR Discussion Papers 70, C.E.P.R. Discussion Papers.
    10. Langlois, Richard N., 2002. "Modularity in technology and organization," Journal of Economic Behavior & Organization, Elsevier, vol. 49(1), pages 19-37, September.
    11. Perry, Martin K., 1989. "Vertical integration: Determinants and effects," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 4, pages 183-255 Elsevier.
    12. 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.
    13. Eckel, Carsten, 2008. "Globalization and specialization," Journal of International Economics, Elsevier, vol. 75(1), pages 219-228, May.
    14. Timothy J. Sturgeon, 2002. "Modular production networks: a new American model of industrial organization," Industrial and Corporate Change, Oxford University Press, vol. 11(3), pages 451-496, June.
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