Corporate Hierarchies and the Size of Nations: Theory and Evidence

Corporate organization varies within a country and across countries with country size. The paper starts by establishing some facts about corporate organization based on unique data of 660 Austrian and German corporations. The larger country (Germany) has larger firms with flatter more decentral corporate hierarchies compared to the smaller country (Austria). Firms in the larger country change their organization less fast than firms in the smaller country. Over time firms have been introducing less hierarchical organizations by delegating power to lower levels of the corporation. We develop a theory which explains these facts and which links these features to the trade environment that countries and firms face. We introduce firms with internal hierarchies in a Krugman (1980) model of trade. We show that international trade and the toughness of competition in international markets induce a power struggle in firms which eventually leads to decentralized corporate hierarchies. We offer econometric evidence which is consistent with the models predictions

Association of Southeast Asian Nations, People's Republic of China, and India Growth and the Rest of the World: The Role of Trade

This paper explores the impact of past and future growth in the Association of Southeast Asian Nations (ASEAN)1 Since the mid-1990s, ACI growth has improved the non-oil terms of trade of the developed countries. There have also been strong complementarities between ACI suppliers of intermediate inputs and PRC exports. More developed Asian countries have benefited from PRC capital goods demand. ACI growth has, however, put competitive pressures on other less-developed manufacturing exporters, worsening their terms of trade and constraining their pricing ability. ACI growth has been especially beneficial for oil and minerals commodity producers. On the other hand, net food importers and oil importing countries have been adversely affected by high import costs. , the People's Republic of China (PRC), and India - here referred to as the ACI countries - on aggregate welfare, relative wages, and global emissions in the rest of the world. It outlines several analytical frameworks, considers effects over the past decade and, based on consensus forecasts, the implications of that growth for the rest of the world in the decades to come. Future ACI growth provides opportunities and challenges for the rest of the world. For developed countries the opportunities are for selling high-end services and capital and consumer goods in the ACI markets and enjoying the benefits from intra-industry trade; the challenges will come from increased head-to-head competition in manufactured goods and services that should become more intense in future decades. For medium-income producers currently at between 30% and 60% of US levels, there will be a tougher tradeoff between more intensive competition with the PRC and serving the growing middle classes in ACI countries. For poorer countries, there will greater opportunities for becoming part of global supply chains in manufactured exports. Standard frameworks that assume internal factor mobility suggest continuing pressures for wage inequality in developed countries. But these hinge on the assumption that the ACI and developed countries will continue to produce similar products and that the ACI will specialize in unskilled labor-intensive products. In fact, as their exports become more technology - intensive and developed countries more specialized these pressures could be alleviated. On the one hand, as the "flying geese" process continues, exports from countries with lower incomes than the PRC are likely to displace PRC labor-intensive exports rather than domestic production in developed countries. On the other hand, while it may cause job loss and erode the returns to specific factors, PRC export growth is less likely to be a source of wage inequality in advanced economies

Cultural and economic complementarities of spatial agglomeration in the British television broadcasting industry: Some explorations.

This paper considers the processes supporting agglomeration in the British television broadcasting industry. It compares and contrasts the insights offered by the cultural turn in geography and more conventionally economic approaches. It finds that culture and institutions are fundamental to the constitution of production and exchange relationships and also that they solve fundamental economic problems of coordinating resources under conditions of uncertainty and limited information. Processes at a range of spatial scales are important, from highly local to global, and conventional economics casts some light on which firms are most active and successful

Domestic Rivalry and Export Performance: Theory and Evidence from International Airline Markets

The much-studied relationship between domestic rivalry and export performance consists of those supporting a national-champion rationale, and those supporting a rivalry rationale. While the empirical literature generally supports the positive effects of domestic rivalry, the national-champion rationale actually rests on firmer theoretical ground. We address this inconsistency by providing a theoretical framework that illustrates three paths via which domestic rivalry translates into enhanced international exports. Furthermore, empirical tests on the world airline industry elicit the existence of one particular path - an enhanced firm performance effect - that connects domestic rivalry with improved international exports

Worldwide spreading of economic crisis

We model the spreading of a crisis by constructing a global economic network and applying the Susceptible-Infected-Recovered (SIR) epidemic model with a variable probability of infection. The probability of infection depends on the strength of economic relations between the pair of countries, and the strength of the target country. It is expected that a crisis which originates in a large country, such as the USA, has the potential to spread globally, like the recent crisis. Surprisingly we show that also countries with much lower GDP, such as Belgium, are able to initiate a global crisis. Using the {\it k}-shell decomposition method to quantify the spreading power (of a node), we obtain a measure of ``centrality'' as a spreader of each country in the economic network. We thus rank the different countries according to the shell they belong to, and find the 12 most central countries. These countries are the most likely to spread a crisis globally. Of these 12 only six are large economies, while the other six are medium/small ones, a result that could not have been otherwise anticipated. Furthermore, we use our model to predict the crisis spreading potential of countries belonging to different shells according to the crisis magnitude.Comment: 13 pages, 4 figures and Supplementary Materia

De-Industrialisation, Entrepreneurial Industries and Welfare

We develop a two-sector general equilibrium model with monopolistic competition featuring nonhomothetic production and a variable demand elasticity for the manufactured goods. An increase in the relative price of manufacturing varieties can lead to a decline in total industrial output in our framework, i.e., to de-industrialisation. The two key mechanisms behind this surprising result are that the founding of firms requires skilled labour as a fixed input requirement, and that the price increase can raise the profit margin in the manufacturing industry and thereby induce firm entry. When the manufacturing sector mainly adjusts at the extensive margin, we refer to this industry as being entrepreneurial. Due to the fixed input requirement entry reduces the effective endowment of skilled labour available for production. This reduces industrial output owing to a novel generalized version of the Rybczynski effect. De-industrialisation occurs if that effect is sufficiently large in comparison with the standard output price effect for a given number of firms. Furthermore we prove the counterintuitive result that de-industrialisation implies a fall in the output per firm and under plausible conditions a rise in welfare. Our results shed new light on the current debates about possible causes of premature de-industrialisation and its welfare effects

Production Networks in Asia: A Case Study from the Hard Disk Drive Industry

Production networks have been extensively developed in East Asia. Previous studies on production networks used international trade data or input-output tables, but such aggregate data cannot explain how the networks actually operate. With the aim of understanding the features and characteristics of East Asian production networks, this paper examines the procurement system of a HDD assembler operating in Thailand. This micro-level case study found that this particular production network consists mostly of arm's-length suppliers, who are independent and on an equal footing with the assembler. These arm's-length suppliers are mostly located in the assembling country, but some are located in neighboring countries. This proximity is necessary to establish good relationships between customer and suppliers and allows problems to be solved as soon as they occur. The arm's-length suppliers engaged in each country's leading industries, such as the electronics industry in Malaysia and Singapore and the automobile industry in Thailand, have extended their business to supply the HDD industry. These suppliers have formed an industrial cluster in each country within a two- or three-hour drive area. Each cluster that spans different countries is linked by a well-developed logistic network that employs the just-in-time production method that prevails in East Asia. On a regional level, these separate clusters tend to form international production networks that connect to each other across neighboring countries within a distance that provides a quick response time for problem solving. This study also found that American HDD assemblers outsourced indigenous suppliers in Malaysia and Singapore because American suppliers did not follow the assemblers' move to the region. However, since Japanese suppliers did follow the Japanese HDD assemblers to the Philippines and Thailand, indigenous suppliers were not outsourced

Which manufacturing industries and sectors are most vulnerable to Brexit?

When the UK leaves the EU, trade arrangements between the UK and EU will change. Most of the options for future UK‐EU relationships currently under discussion imply increased trade barriers, which will reduce trade and also have effects on output and prices. In this paper, we use a multi‐market partial equilibrium model to analyse the vulnerability of 122 manufacturing industries to Brexit. In all five Brexit scenarios we model, there is an overall reduction in UK manufacturing output. Output grows in some industries but at the expense of higher consumer and intermediate goods prices. High tech and medium–high tech sectors are more at risk of a decline in domestic production than lower tech sectors. In most areas of the country, demand for high‐skilled workers falls more than for medium and low‐skilled workers