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Modularity and the Organization of International Production

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  • Ari Van Assche

    (Economics, University of Hawaii-Manoa)

Abstract

In many globalized industries, vertical outsourcing seems to co-evolve with horizontal integration in the component sector. In order to account for this phenomenon, I incorporate modularity into an industry-equilibrium model with monopolistic competition and perfect contracts that allows the organization of the firm to be endogenous in both the vertical and horizontal dimensions of production. The model illustrates that the co-evolution is most likely to occur in industries with modular product architectures and high increasing returns to scale in the intermediate good sector. This paper also provides a theoretical legitimation of Stigler's contentious conjecture that firm production structures become vertically disintegrated as an industry expands.

Suggested Citation

  • Ari Van Assche, 2003. "Modularity and the Organization of International Production," Economics Study Area Working Papers 65, East-West Center, Economics Study Area.
    • Handle: RePEc:ewc:wpaper:wp65
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    References listed on IDEAS

    as
    1. Feenstra, Robert C & Hanson, Gordon H, 1996. "Globalization, Outsourcing, and Wage Inequality," American Economic Review, American Economic Association, vol. 86(2), pages 240-245, May.
    2. Li, Feng & Whalley, Jason, 0. "Deconstruction of the telecommunications industry: from value chains to value networks," Telecommunications Policy, Elsevier, vol. 26(9-10), pages 451-472, October.
    3. Richard N. Langlois, 2003. "The vanishing hand: the changing dynamics of industrial capitalism," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 12(2), pages 351-385, April.
    4. Mowery,David C. & Nelson,Richard R. (ed.), 1999. "Sources of Industrial Leadership," Cambridge Books, Cambridge University Press, number 9780521645201, September.
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    More about this item

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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