Globalization and firm‐level cost structure

Hui Ding, Xiaoyan Lu and Ying Zheng

Review of International Economics, 2019, vol. 27, issue 4, 1040-1062

Abstract: In this study, we draw on economic theories of cost structure and the effects of international trade on firms' productivity to assess firm‐level cost behavior in the context of globalization. We investigate why and how trade openness affects firms' cost structure by examining the changes of fixed inputs along with those in capacity levels. Using a sample consisting of 25 countries from 2000 to 2014, we find that trade openness does significantly affect firms fixed and variable cost inputs, which indicate that production uncertainty along with international trade is essential to the cost structure decision in terms of cost rigidity. Furthermore, larger firms are more likely to adopt a rigid cost structure with higher fixed costs and lower variable costs because they are more involved in the international economy and more exposed to associated uncertainties.

Date: 2019
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