Citation

Discussion Paper Details

Please find the details for DP7028 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Trade Liberalization and Organizational Change

Author(s): Paola Conconi, Patrick Legros and Andrew Newman

Publication Date: October 2008

Keyword(s): Contracts, Firms and Globalization

Programme Area(s): Industrial Organization and International Trade and Regional Economics

Abstract: We embed a simple incomplete-contracts model of organization design in a standard two-country perfectly-competitive trade model to examine how the liberalization of product and factor markets affects the ownership structure of firms. In our model, managers decide whether or not to integrate their firms, trading off the pecuniary benefits of coordinating production decisions with the private benefits of operating in their preferred ways. The price of output is a crucial determinant of this choice, since it affects the size of the pecuniary benefits. In particular, non-integration is chosen at "low" and "high" prices, while integration occurs at moderate prices. Organizational choices also depend on the terms of trade in supplier markets, which affect the division of surplus between managers. We obtain three main results. First, even when firms do not relocate across countries, the price changes triggered by liberalization of product markets can lead to significant organizational restructuring within countries. Second, the removal of barriers to factor mobility can lead to inefficient reorganization and adversely affect consumers. Third, "deep integration" - the liberalization of both product and factor markets - leads to the convergence of organizational design across countries.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=7028

Bibliographic Reference

Conconi, P, Legros, P and Newman, A. 2008. 'Trade Liberalization and Organizational Change'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=7028