“Globalization” and Relocation in a Vertically Differentiated Industry

Author/Editor:

Isabel Grilo ; Tito Cordella

Publication Date:

April 1, 1998

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

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. 98/48

Subject:

English

Publication Date:

April 1, 1998

ISBN/ISSN:

9781451846713/1018-5941

Stock No:

WPIEA0481998

Price:

$15.00 (Academic Rate:$15.00)

Format:

Paper

Pages:

20

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