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Globalization and specialization


  • Eckel, Carsten


The popular Dixit-Stiglitz-Ethier framework proposes that globalization increases the menu of intermediate goods available to downstream firms and that gains from specialization raise welfare unambiguously. This study shows that both results depend critically on the assumption that demand elasticities are invariable. The more general framework presented here provides two main insights: First, whether specialization rises or falls depends ultimately on the shape of the cost function, and second, globalization can actually reduce welfare in the case when specialization falls.

Suggested Citation

  • Eckel, Carsten, 2008. "Globalization and specialization," Munich Reprints in Economics 20533, University of Munich, Department of Economics.
  • Handle: RePEc:lmu:muenar:20533

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    References listed on IDEAS

    1. Leahy, Dermot & Neary, J Peter, 1996. "International R&D Rivalry and Industrial Strategy without Government Commitment," Review of International Economics, Wiley Blackwell, vol. 4(3), pages 322-338, October.
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    3. Head, Keith & Ries, John, 1999. "Rationalization effects of tariff reductions," Journal of International Economics, Elsevier, vol. 47(2), pages 295-320, April.
    4. Paul Krugman & Anthony J. Venables, 1995. "Globalization and the Inequality of Nations," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 857-880.
    5. Ethier, Wilfred, 1979. "Internationally decreasing costs and world trade," Journal of International Economics, Elsevier, vol. 9(1), pages 1-24, February.
    6. Dasgupta, Partha & Stiglitz, Joseph, 1980. "Industrial Structure and the Nature of Innovative Activity," Economic Journal, Royal Economic Society, vol. 90(358), pages 266-293, June.
    7. 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.
    8. Holtz-Eakin, Douglas & Lovely, Mary E., 1996. "Technological linkages, market structure, and production policies," Journal of Public Economics, Elsevier, vol. 61(1), pages 73-86, July.
    9. Romer, Paul M, 1987. "Growth Based on Increasing Returns Due to Specialization," American Economic Review, American Economic Association, vol. 77(2), pages 56-62, May.
    10. Rodriguez-Clare, Andres, 1996. "The division of labor and economic development," Journal of Development Economics, Elsevier, vol. 49(1), pages 3-32, April.
    11. Benassy, Jean-Pascal, 1996. "Taste for variety and optimum production patterns in monopolistic competition," Economics Letters, Elsevier, vol. 52(1), pages 41-47, July.
    12. Yang, Xiaokai & Heijdra, Ben J, 1993. "Monopolistic Competition and Optimum Product Diversity: Comment," American Economic Review, American Economic Association, vol. 83(1), pages 295-301, March.
    13. Joseph F. Francois, 1992. "Optimal Commercial Policy with International Returns to Scale," Canadian Journal of Economics, Canadian Economics Association, vol. 25(1), pages 184-195, February.
    14. repec:hhs:iuiwop:430 is not listed on IDEAS
    15. Spence, Michael, 1984. "Cost Reduction, Competition, and Industry Performance," Econometrica, Econometric Society, vol. 52(1), pages 101-121, January.
    16. 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.
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    Cited by:

    1. Rabah Amir & Jim Y. Jin & Michael Troge, 2015. "Free Trade vs. Autarky under Asymmetric Cournot Oligopoly," Discussion Paper Series, Department of Economics 201509, Department of Economics, University of St. Andrews.
    2. Epifani, Paolo & Gancia, Gino, 2011. "Trade, markup heterogeneity and misallocations," Journal of International Economics, Elsevier, vol. 83(1), pages 1-13, January.
    3. Cheng-Te Lee & Deng-Shing Huang, 2017. "Asymmetric Globalization and Specialization," IEAS Working Paper : academic research 17-A004, Institute of Economics, Academia Sinica, Taipei, Taiwan.
    4. repec:eee:reecon:v:71:y:2017:i:4:p:653-662 is not listed on IDEAS
    5. Anu Kovarikova Arro, 2005. "Globalization, Increasing Returns in Component Production, and the Pattern of Trade," CERGE-EI Working Papers wp265, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    6. Ari Van Assche, 2006. "Modularity and the Organization of International Production," CIRANO Working Papers 2006s-09, CIRANO.
    7. Bos Jaap W.B. & Economidou Claire & Zhang Lu, 2011. "Specialization in the Presence of Trade and Financial Integration: Explorations of the Integration-Specialization Nexus," Research Memorandum 026, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    8. Grazia CalabrĂ² & Simone Vieri, 2015. "Political Actions Oriented to Territorial Development: The Multifunctional Role of Agriculture," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 17(Special 9), pages 1346-1346, November.

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