"Globalization" and Vertical Structure

John McLaren

American Economic Review, 2000, vol. 90, issue 5, 1239-1254

Abstract: This paper analyzes the effects of international openness on vertical integration. Vertical integration can confer a negative externality, by thinning the market for inputs and thus worsening opportunism problems; this induces strategic complementarity and multiple equilibria in the integration decision, thus providing a theory of different "industrial systems" or "industrial cultures" in ex ante identical countries. International openness thickens the market, facilitating leaner, less integrated firms, thus providing gains from international openness quite different from those that are familiar from trade theory. This may be taken as one theory of "outsourcing," "downsizing," and "Japanization" as consequences of "globalization."

JEL-codes: F12 F15 L16 L22 (search for similar items in EconPapers)
Date: 2000
Note: DOI: 10.1257/aer.90.5.1239
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Citations: View citations in EconPapers (255)

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