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International Trade, Flexible Manufacturing and Outsourcing

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  • Eckel, Carsten

Abstract

This study analyzes the impact of international trade on the diffusion of flexible manufacturing in a general equilibrium framework. Suppliers produce a flexible base product that can be adapted to the specific input requirements of a continuum of downstream industries. The vertical structure is determined by the trade-off between economies of scope in flexible manufacturing and product specificity of in-house production. In this framework, globalization can lead to alternating waves of insourcing and outsourcing, but once the world market reaches a threshold size, outsourcing prevails. We also derive a number of testable predictions with regard to firm size and productivity measures that are in line with recent empirical and casual evidence.

Suggested Citation

  • Eckel, Carsten, 2005. "International Trade, Flexible Manufacturing and Outsourcing," Center for European, Governance and Economic Development Research Discussion Papers 45, University of Goettingen, Department of Economics.
  • Handle: RePEc:zbw:cegedp:45
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    References listed on IDEAS

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    1. John McLaren, 2000. ""Globalization" and Vertical Structure," American Economic Review, American Economic Association, vol. 90(5), pages 1239-1254, December.
    2. Ethier, Wilfred, 1979. "Internationally decreasing costs and world trade," Journal of International Economics, Elsevier, vol. 9(1), pages 1-24, February.
    3. 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.
    4. 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.
    5. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    6. Eaton, B Curtis & Schmitt, Nicolas, 1994. "Flexible Manufacturing and Market Structure," American Economic Review, American Economic Association, vol. 84(4), pages 875-888, September.
    7. 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.
    8. Donald Gerwin, 1993. "Manufacturing Flexibility: A Strategic Perspective," Management Science, INFORMS, vol. 39(4), pages 395-410, April.
    9. Gene M. Grossman & Elhanan Helpman, 2002. "Integration versus Outsourcing in Industry Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 117(1), pages 85-120.
    10. 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. Carsten Eckel & J. Peter Neary, 2010. "Multi-Product Firms and Flexible Manufacturing in the Global Economy," Review of Economic Studies, Oxford University Press, vol. 77(1), pages 188-217.
    2. Inga Heiland & Wilhelm Kohler, 2013. "Heterogeneous Workers, Trade, and Migration," CESifo Working Paper Series 4387, CESifo Group Munich.
    3. Luigi Pascali, 2009. "Contract Incompleteness, Globalization and Vertical Structure: an Empirical Analysis," Boston College Working Papers in Economics 727, Boston College Department of Economics.

    More about this item

    Keywords

    International Trade; Flexible Manufacturing; Outsourcing; Vertical Integration; Globalization; General Equilibrium;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • 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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