Department of Economics and Business Economics

Trade Liberalisation and Vertical Integration: with Peter A. Bache

Research output: Working paperResearch

Documents

  • TLVI_18

    Submitted manuscript, 506 KB, PDF document

We build a three-country model of international trade in final goods and intermediate inputs and study the relation between four different types of trade liberalisation and vertical integration. Firms are heterogeneous with respect to both productivity and factor (headquarter) intensity. Final-good producers face decisions on exporting, vertical integration of intermediate-input production, and whether the intermediate-input production should be offshored to a low-wage country. We find that the fractions of final-good producers that pursue either vertical integration, offshoring, or exporting are all increasing when intermediate-input trade or final-goods trade is liberalised. Finally, we provide guidance for testing the open-economy property rights theory of the firm using firm-level data and surprisingly show that the relationship between factor (headquarter) intensity and the likelihood of vertical integration is nonmonotone.
Original languageDanish
PublisherInstitut for Økonomi, Aarhus Universitet
Publication statusPublished - 2016

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