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Intermediate Inputs and External Economies

Author

Listed:
  • Haiwen Zhou

    (Department of Economics, Old Dominion University, Norfolk, VA 23529, USA)

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 the 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 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.

Suggested Citation

  • Haiwen Zhou, 2014. "Intermediate Inputs and External Economies," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 9(2), pages 216-239, June.
    • Handle: RePEc:fec:journl:v:9:y:2014:i:2:p:216-239
    as

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    File URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-003-014-0012-1
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    References listed on IDEAS

    as
    1. James R. Markusen, 1990. "Micro-foundations of External Economies," Canadian Journal of Economics, Canadian Economics Association, vol. 23(3), pages 495-508, August.
    2. Haiwen Zhou, 2007. "Increasing Returns, the Choice of Technology, and the Gains from Trade," Southern Economic Journal, John Wiley & Sons, vol. 74(2), pages 581-600, October.
    3. Junxi Zhang, 2007. "Endogenous Markups, Intensity of Competition, and Persistence of Business Cycles," Southern Economic Journal, John Wiley & Sons, vol. 74(2), pages 546-565, October.
    4. Haiwen Zhou, 2004. "The division of labor and the extent of the market," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 24(1), pages 195-209, July.
    5. Haiwen Zhou, 2011. "Economic Systems and Economic Growth," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 39(3), pages 217-229, September.
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    10. Arnott, Richard J. & Greenwald, Bruce & Kanbur, Ravi & Nalebuff, Barry, 2003. "Joseph Stiglitz and Economics for an Imperfect World," Working Papers 127202, Cornell University, Department of Applied Economics and Management.
    11. Antonio Ciccone, 2002. "Input Chains and Industrialization," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(3), pages 565-587.
    12. Milgrom, Paul & Roberts, John, 1994. "Comparing Equilibria," American Economic Review, American Economic Association, vol. 84(3), pages 441-459, June.
    13. Ming Chen & Yeung-Nan Shieh, 2011. "Specific commodity taxes, output and location decision under free entry oligopoly," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 47(1), pages 25-36, August.
    14. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
    15. Haiwen Zhou, 2007. "Increasing Returns, the Choice of Technology, and the Gains from Trade," Southern Economic Journal, John Wiley & Sons, vol. 74(2), pages 581-600, October.
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    Cited by:

    1. Haiwen Zhou, 2019. "Coordination Costs, Market Size, and the Choice of Technology," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 14(1), pages 131-148, March.
    2. Haiwen Zhou, 2024. "National integration and institution building," Pacific Economic Review, Wiley Blackwell, vol. 29(1), pages 26-43, February.
    3. Christopher Colburn & Haiwen Zhou, 2022. "The partition of production between households and markets," International Studies of Economics, John Wiley & Sons, vol. 17(1), pages 21-35, June.

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    More about this item

    Keywords

    external economies; internal increasing returns; linkage effects; choice of technology; oligopolistic competition;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General

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