Globalization and specialization

Carsten Eckel

Munich Reprints in Economics from University of Munich, Department of Economics

Abstract: The popular Dixit-Stiglitz-Ethier framework proposes that globalization increases the menu of intermediate goods available to downstream firms and that gains from specialization raise welfare unambiguously. This study shows that both results depend critically on the assumption that demand elasticities are invariable. The more general framework presented here provides two main insights: First, whether specialization rises or falls depends ultimately on the shape of the cost function, and second, globalization can actually reduce welfare in the case when specialization falls.

Date: 2008
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Published in Journal of International Economics 1 75(2008): pp. 219-228

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Persistent link: https://EconPapers.repec.org/RePEc:lmu:muenar:20533

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