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Eckel, Carsten (2009): International trade, flexible manufacturing, and outsourcing. In: Canadian Journal of Economics / Revue Canadienne d'Economique, Vol. 42, No. 4: pp. 1449-1472

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This study analyzes the impact of opening up markets on the diffusion of flexible manufacturing in a general equilibrium framework. With flexible manufacturing, suppliers can service a range of downstream industries and do not have to be concerned about being held up. Instead, the vertical structure is determined by the trade-off between economies of scale in flexible manufacturing and product specificity of in-house production. The analysis derives a number of testable predictions with regard to firm size and productivity measures and shows that globalization can lead to a consolidation in upstream markets, lower real wages, and reduce welfare.

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