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The Strength of Vertical Linkages

Author

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  • Jan Kranich

    (Institute of Economics, University of Lüneburg)

Abstract

This paper discusses the interdenpendencies that exist between vertically-linked industries in the (Spence-)Dixit-Stiglitz model of monopolistic competition. The main objective is to develop a concept for quantifying the magnitude of sectoral coherence in models of the New Economic Geography. It is motivated by the suggestion, by Venables (1996), that `strategic industries` be identified in terms of their agglomeration potential. Using a partial-analytic approach, we focus on inter-industrial relations in a closed economy to draw conclusions regarding international trade. We ascertain that two factors have an impact upon the strength of industrial linkages: 1) the monopolistic scope of intermediate suppliers, in terms of (technical) substitution elasticity; and the share in downstream costs for intermediates. Within a simulation study, this paper applies this new theoretical concept to eight basic industries across ten European countries.

Suggested Citation

  • Jan Kranich, 2006. "The Strength of Vertical Linkages," Working Paper Series in Economics 20, University of Lüneburg, Institute of Economics.
    • Handle: RePEc:lue:wpaper:20
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    References listed on IDEAS

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    3. repec:fth:iniesr:430 is not listed on IDEAS
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    Cited by:

    1. Jan Kranich, 2007. "Too much R&D? - Vertical differentiation in a model of monopolistic competition," Working Paper Series in Economics 59, University of Lüneburg, Institute of Economics.

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    Keywords

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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

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