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Business Groups and Trade in East Asia: Part 1, Networked Equilibria

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  • Robert C. Feenstra
  • Deng-Shing Huang
  • Gary G. Hamilton

Abstract

We propose an economic model of business groups that allows for the cooperative behavior of groups of firms, where the number and size of each group is determined endogenously. In this framework, more than one configuration of groups can arise in equilibrium: several different types of business groups can occur, each of which is consistent with profit-maximization and is stable. This means that the economic logic does not fully determine the industrial structure, leaving scope for political and sociological factors to have a lasting influence. In a companion paper, we argue that the differing structures of business groups found in South Korea, Taiwan and Japan fit the stylized results from the model, and contrast the impact of these groups on the product variety of their country exports to the United States.

Suggested Citation

  • Robert C. Feenstra & Deng-Shing Huang & Gary G. Hamilton, 1997. "Business Groups and Trade in East Asia: Part 1, Networked Equilibria," NBER Working Papers 5886, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:5886
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    References listed on IDEAS

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    1. Ariel Pakes & Paul McGuire, 1994. "Computing Markov-Perfect Nash Equilibria: Numerical Implications of a Dynamic Differentiated Product Model," RAND Journal of Economics, The RAND Corporation, vol. 25(4), pages 555-589, Winter.
    2. Feenstra, Robert C, 1994. "New Product Varieties and the Measurement of International Prices," American Economic Review, American Economic Association, vol. 84(1), pages 157-177, March.
    3. Feenstra, R.C. & Yang, T.H. & Hamilton, G.G., 1993. "Market Structure and International Trade: Business Groups in East Asia," Papers 93-23, California Davis - Institute of Governmental Affairs.
    4. Greif, Avner, 1994. "Cultural Beliefs and the Organization of Society: A Historical and Theoretical Reflection on Collectivist and Individualist Societies," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 912-950, October.
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    Cited by:

    1. James E. Rauch, 2001. "Business and Social Networks in International Trade," Journal of Economic Literature, American Economic Association, vol. 39(4), pages 1177-1203, December.
    2. Feenstra, Robert C. & Yang, Tzu-Han & Hamilton, Gary G., 1999. "Business groups and product variety in trade: evidence from South Korea, Taiwan and Japan," Journal of International Economics, Elsevier, vol. 48(1), pages 71-100, June.
    3. John McLaren, 2000. ""Globalization" and Vertical Structure," American Economic Review, American Economic Association, vol. 90(5), pages 1239-1254, December.
    4. Feenstra, Robert C. & Madani, Dorsati & Yang, Tzu-Han & Liang, Chi-Yuan, 1999. "Testing endogenous growth in South Korea and Taiwan," Journal of Development Economics, Elsevier, vol. 60(2), pages 317-341, December.
    5. Spencer, Barbara J & Qiu, Larry D, 2001. "Keiretsu and Relationship-Specific Investment: A Barrier to Trade?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 871-901, November.
    6. de Groot, H.L.F., 1998. "Macroeconomic Consequences of Outsourcing. An Analysis of Growth, Welfare and Product Variety," Other publications TiSEM fcbc1070-85e4-4b77-b138-0, Tilburg University, School of Economics and Management.
    7. Tito Boeri & Joaquim Oliveira-Martins, 2002. "Transition, variété des produits et intégration économique," Economie & Prévision, La Documentation Française, vol. 0(1), pages 55-69.
    8. Tito Boeri & Joaquim Oliveira Martins, 2002. "Varieties, Jobs and EU Enlargement," Rivista di Politica Economica, SIPI Spa, vol. 92(1), pages 139-178, January-F.
    9. Krug, B., 2003. "Networks In Cultural, Economic and Evolutionary Perspective," ERIM Report Series Research in Management ERS-2003-050-ORG, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.

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    More about this item

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

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