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Intermediate Inputs and External Economies

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  • Haiwen Zhou

    (Department of Economics, Old Dominion University, Norfolk, VA 23529, USA)

Abstract

Is the degree of external economies (at the industry level) higher than the degree of internal increasing returns (at the firm level)? If so, what is the exact source of this difference? In the general equilibrium model in which firms producing final goods choose the degree of specialization of their technologies, external economies arise from the usage of intermediate inputs and the existence of internal increasing returns. It is frequently assumed that increasing returns are absent at the firm level while present at the industry level. In this model, the existence of increasing returns at the firm level is necessary for the existence of external economies at the industry level. We show that the degree of external economies increases with the level of linkage effects. However, a higher linkage effect does not always lead firms to choose more specialized technologies.

Suggested Citation

  • Haiwen Zhou, 2014. "Intermediate Inputs and External Economies," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 9(2), pages 216-239, June.
    • Handle: RePEc:fec:journl:v:9:y:2014:i:2:p:216-239
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    File URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-003-014-0012-1
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    References listed on IDEAS

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    1. James R. Markusen, 1990. "Micro-foundations of External Economies," Canadian Journal of Economics, Canadian Economics Association, vol. 23(3), pages 495-508, August.
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    3. Colburn, Christopher & Zhou, Haiwen, 2021. "The Partition of Production between Households and Markets," MPRA Paper 107158, University Library of Munich, Germany.

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    More about this item

    Keywords

    external economies; internal increasing returns; linkage effects; choice of technology; oligopolistic competition;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General

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