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International trade, flexible manufacturing, and outsourcing

  • Eckel, Carsten

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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Paper provided by University of Munich, Department of Economics in its series Munich Reprints in Economics with number 20531.

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Date of creation: 2009
Date of revision:
Publication status: Published in Canadian Journal of Economics / Revue Canadienne d'Economique 4 42(2009): pp. 1449-1472
Handle: RePEc:lmu:muenar:20531
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Web page: http://www.vwl.uni-muenchen.de

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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. Donald Gerwin, 1993. "Manufacturing Flexibility: A Strategic Perspective," Management Science, INFORMS, vol. 39(4), pages 395-410, April.
  3. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  4. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  5. Eaton, B Curtis & Schmitt, Nicolas, 1994. "Flexible Manufacturing and Market Structure," American Economic Review, American Economic Association, vol. 84(4), pages 875-88, September.
  6. 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.
  7. 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.
  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. 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.
  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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