Industrial organisation

Laura Alfaro, Pol Antràs, Davin Chor, Paola Conconi, 14 November 2015

Trade in intermediate inputs now accounts for as much as two-thirds of international trade. Firms must decide which segments of their production processes to own and which to outsource. Using global plant-level data, this column empirically examines firms’ organisational choices along value chains. Decisions to integrate or outsource upstream and downstream functions are found to depend on demand elasticity relative to the substitutability of inputs. These results provide strong evidence that integration decisions are driven by contractual frictions.

Hyeog Ug Kwon, 20 October 2015

Though Japanese firms benefit from a high-quality workforce and invest in R&D as much as their US counterparts, they fall behind US firms in terms of their earning power. This column suggests that corporate structures in the two countries could be an explanation for this phenomenon. The findings indicate that CEOs of US firms aim to maximise profits, whereas CEOs of Japanese firms prioritise long-term corporate survival.

Jayant Menon, Thiam Hee Ng, 01 October 2015

Malaysia’s fortunes have taken a turn for the worse in recent years, both in manufacturing and across the economy in general. This column argues that the country is moving back to processing its agricultural and mineral resources, and that such ‘premature deindustrialisation’ is mostly policy driven. The biggest concern with such structural shifts is that they lead to low-productivity, low-wage manufacturing. Malaysia must address these issues and improve its business environment if it wants to realise its aspirations.

Eugenio J. Miravete, Maria J. Moral, Jeff Thurk, 30 September 2015

Diesel vehicles have never been popular in the US, but have dominated sales in Europe. This column presents new evidence explaining why this is the case. A change in preferences and the numerous competing suppliers benefited the diffusion of diesel cars. But more important was a European environmental policy that favoured CO2 reductions. As diesel vehicles are only produced by European manufacturers, this policy provided a competitive advantage for domestic producers equivalent to a 20% import duty.

Toshihiro Okubo, Yukako Ono, Yukiko Umeno Saito, 04 September 2015

The productivity of a firm depends on its interaction with its suppliers and customers. This column uses unique data from Japan to investigate the wholesalers’ role in transaction networks, considering both sides of the transaction. The likelihood that a firm uses wholesalers increases with smaller buyer-side firms and larger seller-side firms. In addition, wholesalers tend to be located closer to their manufacturing buyers and further from their manufacturing sellers than manufacturers are to their direct manufacturing partners.

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