DP4152 Globalization and the Evolution of the Supply Chain: Who Gains and Who Loses?

Author(s): Masahisa Fujita, Jacques-François Thisse
Publication Date: December 2003
Keyword(s): agglomeration, communication costs, headquarters, information technologies, plants, relocation, supply chain
JEL(s): F12, L13, R13
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=4152

This Paper focuses on two distinct facets of globalization: the decrease in the trade costs of goods and the decline of communication costs between headquarters and production facilities within firms. When the unskilled have about the same wage in the two regions, the decrease of these costs fosters the gradual agglomeration of plants in the core region accommodating the headquarters. By contrast, when the wage gap is significant, the process of integration eventually triggers the relocation of plants into the periphery. In particular, when falling communication costs drives the process of relocation, the welfare of all workers living in the core goes down whereas the welfare of those who reside in the periphery rises.