Cost Competition, Fragmentation and Globalization

Barbara Dluhosch and Michael Burda

No 393, CESifo Working Paper Series from CESifo

Abstract: This paper proposes a model in which the removal of barriers to trade and factor mobility is associated with endogenous fragmentation of the value-added chain. Fragmentation is the outcome of cost competition ? the profit-maximizing choice of cost structure by monopolistically com-petitive firms. An expansion of the integrated trading area can induce globalization not only in the horizontal dimension associated with love-of-variety preferences, but also in a vertical dimension as firms vary specialization of production stages. While increased trade is likely to in-duce fragmentation when the number of firms is fixed, free entry can either reverse or intensify this result.

Keywords: International trade; organization of production; technology choice; division of labor (search for similar items in EconPapers)
Date: 2000
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Citations: View citations in EconPapers (12)

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Journal Article: Cost Competition, Fragmentation, and Globalization (2002)
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