Intermediate Inputs and External Economies

Zhou, Haiwen (2017): Intermediate Inputs and External Economies. Published in: Frontiers of Economics in China , Vol. 9, No. 2 (2014): pp. 216-239.

Abstract

Is the degree of external economies (at the industry level) higher than the degree of internal increasing returns (at the firm level)? If so, what is the exact source of this difference? In this general equilibrium model in which firms producing final goods choose the degree of specialization of their technologies, external economies arise from the usage of intermediate inputs and the existence of internal increasing returns. It is frequently assumed that increasing returns are absent at the firm level while are present at the industry level. In this model, the existence of increasing returns at the firm level is necessary for the existence of external economies at the industry level. We show that the degree of external economies increases with the level of linkage effects. However, a higher linkage effect does not always lead firms to choose more specialized technologies.

• Item Type: MPRA Paper
• Language: English
• Keywords: External economies, internal increasing returns, linkage effects, choice of technology, oligopolistic competition
• Subjects: F - International Economics > F1 - Trade > F10 - General; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L10 - General; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R1 - General Regional Economics > R10 - General

References

References

Chandler, Alfred. 1990. Scale and Scope: The Dynamics of Industrial Capitalism. Cambridge, MA: Harvard University Press.

Chen, Ming Chieh, and Yeung-Nan Shieh. 2011. Specific commodity taxes, output and location decision under free entry oligopoly. Annals of Regional Science 47, 25-36.

Chao, Chi-Chur, and Eden Yu. 1997. Trade liberalization in oligopolistic competition with unemployment: a general equilibrium analysis. Canadian Journal of Economics 30, 479-496.

Ciccone, Antonio. 2002. Input chains and industrialization. Review of Economic Studies 69, 565-587.

Ethier, Wilfred. 1982. National and international returns to scale in the modern theory of international trade. American Economic Review 72, 389-405.

Hirschman, Albert. 1958. The Strategy of Economic Development. New Haven, CT: Yale University Press.

Jones, Charles. 2011. Intermediate goods and weak links in the theory of economic development. American Economic Journal: Macroeconomics 3, 1-28.

Levinson, Marc. 2006. The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger. Princeton, NJ: Princeton University Press.

Markusen, James. 1990. Micro-foundations of external economies. Canadian Journal of Economics 23, 495-508.

Marshall, Alfred. 1920. Principles of Economics. Eighth edition, New York: The MacMillan Company.

Metzler, Lloyd. 1945. Stability of multiple markets: The Hicks conditions. Econometrica 13, 277-292.

Milgrom, Paul, and John Roberts. 1994. Comparing equilibria. American Economic Review 84, 441-459.

Murphy, Kevin, Andrei Shleifer, and Robert Vishny. 1989. Industrialization and big push. Journal of Political Economy 97, 1003-1026.

Neary, Peter, J. 2003. The Road Less Traveled: Oligopoly and Competition Policy in General Equilibrium. In: R. Arnott, B. Greenwald, R. Kanbur and B. Nalebuff (eds.): Economics for an Imperfect World: Essays in Honor of Joseph E. Stiglitz, Cambridge, MA: MIT Press.

Porter, Michael. 1990. The Competitive Advantage of Nations. New York: Free Press.

Roberts, Mark, and James Tybout. 1996. Industrial Evolution in Developing Countries. New York: Oxford University Press.

Rosenstein-Rodan, Paul. 1943. The problem of industrialization of Eastern and South-Eastern Europe. Economic Journal 53, 202-211.

Saaty, Thomas. 1981. Modern Nonlinear Equations. New York: Dover Publications.

Samuelson, Paul. 1983. Foundations of Economic Analysis. Enlarged edition, Cambridge, MA: Harvard University Press.

Takayama, Akira. 1985. Mathematical Economics. Second edition, New York: Cambridge University Press.

Wang, X. H., and Jingang Zhao. 2007. Welfare reductions from small cost reductions in differentiated oligopoly. International Journal of Industrial Organization 25, 173-185.

Zhang, Junxi. 2007. Endogenous markups, intensity of competition, and persistence of business cycles. Southern Economic Journal 74, 546-565.

Zhou, Haiwen. 2004. The division of labor and the extent of the market. Economic Theory 24, 195-209.

Zhou, Haiwen. 2007. Increasing returns, the choice of technology, and the gains from trade. Southern Economic Journal 74, 581-600.

Zhou, Haiwen. 2011. Economic systems and economic growth. Atlantic Economic Journal 39, 217-229.