“Globalization” and Relocation in a Vertically Differentiated Industry
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Summary:
This paper uses a vertical differentiation duopoly framework to analyze firms’ relocation decisions, when the removal of trade barriers or restrictions on capital outflows or inflows (“globalization”) allows them to serve the domestic market through foreign plants in low-wage countries. The relocation of the entire industry yields net welfare costs, but the relocation of one (and only one) firm, may be welfare improving. When the economy is “high-(or low-) quality biased,” the relocation of the firm producing the high- (or low-) quality variant is preferred, on welfare terms, to that of other firms, if the wage differential is large enough.
Series:
Working Paper No. 1998/048
Subject:
Globalization International trade Labor Labor costs Trade liberalization Unemployment Wages
English
Publication Date:
April 1, 1998
ISBN/ISSN:
9781451846713/1018-5941
Stock No:
WPIEA0481998
Pages:
20
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