International Trade, Flexible Manufacturing and Outsourcing

Carsten Eckel ()

No 45, Center for European, Governance and Economic Development Research (cege) Discussion Papers from Center for European, Governance and Economic Development Research, University of Goettingen (Germany).

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.

Keywords: International Trade; Flexible Manufacturing; Outsourcing; Vertical Integration; Globalization; General Equilibrium (search for similar items in EconPapers)
JEL-codes: F12 L11 L22 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int
Date: Written 2005-06-07
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