The Spanish automotive industry: scale economies and input relationships

This paper investigates the existence of economies of scale in the Spanish automobile industry as well as the substitution possibilities between input pairs and the direct and cross price elasticities of demand for the various inputs by estimating a translog cost function for both a three input model involving capital, labour, and intermediate goods as well as a four input model where energy is separated from other intermediate goods. The results of this study are consistent with the hypothesis of economies of scale in the Spanish automobile industry, particularly at the low and mean levels of output. These results also are consistent with the hypothesis that capital is a substitute for the other inputs, but that labour and intermediate goods are complements. Labour and energy also appear to have a complementary relationship over most of the data points in this study. The significance of a complementary relationship between labour and intermediate goods is that any attempt by the Spanish government to restrict imports of these inputs, resulting in higher domestic prices for them, may aggravate an already serious domestic unemployment problem.     

Cost relationships and challenges in the Spanish apparel industry

In the twenty-first century, the Spanish textile and apparel industries have faced substantial challenges, resulting in declining sales and employment. This study concentrates on the apparel industry, since its economic challenges and opportunities differ from those of the textile industry. The analysis employs a transcendental logarithmic cost function to investigate the presence of scale economies and the interrelationships among inputs of domestic capital, labour and intermediate goods as well as outsourced intermediate products for the Spanish apparel industry and discusses the implications for its future competitiveness and the demand for domestic inputs. The results are consistent with diseconomies of scale or, in the case of one model, possibly constant returns to scale, indicating that some contraction of the industry due to international competition will not raise unit costs. All of the inputs except for capital and intermediate goods were found to be substitutes. An important finding is that the cross elasticity values of both labour and domestic intermediate goods with respect to the price of outsourced goods have risen over time, indicating an increased sensitivity of the quantity demanded of these home-country inputs to the price of imported intermediate goods. It follows that domestic input markets will be more substantially affected by international prices for outsourced inputs as the industry tries to maintain its competitiveness in the global environment.     

A cost-based analysis of scale economies in the French auto industry

This paper examines cost relationships in the French automobile industry using a translog cost function with domestic capital and labor and domestic and foreign intermediate goods inputs. The findings suggest scale economies at lower output levels, but diseconomies at mean and maximum output levels. Cross price elasticity estimates implied all input pairs except capital and foreign parts and labor and domestic parts are substitutes. Except for foreign components, direct price elasticity estimates were inelastic. Thus, further integration of Europe and reduction of foreign input prices may substantially increase their quantity demanded and decrease the demand for domestic labor and parts.     

The Spanish Textile Industry Sans ATC Quota Protection

The Spanish textile and apparel manufacturing sectors have been badly impacted by the global recession as well as the removal of quotas that were in place with the Agreement on Textiles and Clothing (ATC). This study employs a cost function to investigate the presence of scale economies and the interrelationships among inputs of domestic capital, labor, and intermediate goods as well as outsourced (imported) intermediate products for the Spanish textile industry in a global environment that has become increasingly competitive. While there is evidence of scale economies at low output levels, there is also some evidence consistent with diseconomies of scale at the highest output levels. All of the inputs appear to be substitutes for one another except for domestic capital and outsourced intermediate goods. An important finding is that the demands for both labor and domestic intermediate goods have become increasingly sensitive to the prices of outsourced inputs. The estimated coefficients of dummy variables indicate that reduced international trade restrictions have put downward pressure on unit cost for the industry in recent years. These results suggest that the Spanish textile industry and its domestic suppliers will be increasingly challenged by international competitive pressures.     

Skilled–unskilled wage inequality,product variety,public input and increasing returns: A static general equilibrium analysis

The paper develops a four sector small open economy model with two traded final good sectors, a public intermediate good producing sector and a nontraded good sector producing varieties of intermediate goods. There are three primary factors: capital, skilled labour and unskilled labour. Industrial sector producing a traded good uses capital, intermediate goods and skilled labour as inputs. Intermediate goods producing sector also uses capital and skilled labour. Public input producing sector and the agricultural sector producing the other traded good use capital and unskilled labour as inputs. It is shown that, if production technologies are the same for the agricultural sector and the public input producing sector and if the scale elasticity of output is very low, then an increase in capital stock (unskilled labour endowment) raises (lowers) the skilled–unskilled wage ratio. However, an increase in skilled labour endowment does not produce any unambiguous effect. On the other hand, an increase in the tax rate on industrial output and/or an increase in the price of the agricultural product, armed with the same set of assumptions, lowers the skilled–unskilled wage ratio.     

The Effects of Trade Liberalization in a Vertical Structure

Despite the importance of international trade on intermediate goods, the literature did not pay much attention to this aspect in determining the effects of trade liberalization in the presence of a labor union. We take up this issue here and show the effects of trade liberalization on the final goods and/or the intermediate goods, where the domestic firm pays unionized wage and imports intermediate goods. We show that trade liberalization on the intermediate goods (final goods) increases (decreases) the unionized wage, labor union's utility and domestic profit. Trade liberalization on both the final goods and intermediate goods may either increase or decrease the domestic unionized wage, labor union's utility and domestic profit depending on the input coefficients and the initial tariff levels. Our qualitative results are robust with respect to the intermediate goods market structure, the pricing strategy of the intermediate goods producers and the union's objective function.     

Trade liberalization and the Mexican steel industry

The impact of the North American Free Trade Agreement (NAFTA) on the competitive positions of Mexican and U.S. steel producers is investigated employing a translog cost function with four inputs (capital, labor, domestic intermediate goods, and foreign intermediate goods) to examine scale characteristics and input substitution in Mexican steel production. Results are consistent with diseconomies of scale at high levels of output and with substitute relationships between all input pairs except labor and domestic intermediate goods. Thus, output growth will likely result in cost reductions for Mexican producers only if the industry reaps significant benefits from substitution of foreign inputs for domestic. Recent increases in Mexico's imports of finished steel have much exceeded those of steel industry inputs, and it therefore does not seem likely that a Mexican cost advantage over steel producers in the United States will soon emerge as a result of economies of scale.     

The motor vehicle industry in an emerging nation: the case of Brazil

As in other emerging nations, in Brazil, the motor vehicle industry is considered to be strategically important for economic development because of its backward and forward linkages and possibilities for export-led growth. This study analyses prospects for the industry by estimating an industry-level cost function that includes output of both vehicles and component parts with capital, labour and intermediate goods as inputs. The cost elasticity of output (an indicator of scale properties) and the elasticity relationships among inputs are explored. One unexpected outcome of the work that appears to be robust is that during early years of the study period, the industry had constant returns or even diseconomies of scale. However, during later years, when output was greater, there were economies of scale. This finding is likely the result of some combination of the entry of new firms, the development of new models or technological change. The study concludes that if firm output can be increased, economies of scale can be expected to strengthen the position of the Brazilian industry in the international marketplace.     

A Cost Function Analysis of the Australian Transportation Equipment Industry

This article investigates the existence of economies of scale and input cross and direct price elasticities of demand in the Australian motor vehicle industry. Our estimated cost elasticities were less than one (consistent with economies of scale), but not significantly less than one at the 10 per cent level for two versions of the model. However, the estimated cost elasticity was significantly less than one at approximately the 2.5 per cent level for a third. Thus, these results give some credibility to the infant industry argument for continued assistance to the Australian transportation equipment industry. A four-input model separating domestic and foreign intermediate goods inputs suggests that while restrictions on imported components may have given some short-run relief to the domestic components industry and increased the demand for labour domestically, they decreased the demand for domestic capital. Although the infant industry argument could support short-run protectionist policies for the industry, it appears that such policies regarding the Australian motor vehicle industry must be designed carefully with a specified phase-out period if long-term adverse results are to be avoided.     

Why does China protect its labour‐intensive industries more?*

China's tariff structure favours labour‐intensive sectors, and this is at odds with traditional theory of comparative advantage. The paper argues that tariffs in China are a mechanism for protecting technology‐backward domestic – especially state‐owned enterprises (SOEs) from competition technology‐advanced foreign enterprises producing in China. With relatively integrated labour markets and cross‐firm technology differences, SOEs’ subsistence is supported by subsidized credit and limited access of foreign firms’ local production to tariff‐protected domestic markets. Labour market integration and capital subsidies increase the relative cost of labour in SOEs compared to their foreign competitors, hurting more domestic firms in industries that use labour more intensively. Restrictions to FIEs’ (foreign‐invested enterprises) access to tariff‐protected product markets, which protect more labour‐intensive industries, compensate for the greater cost disadvantage of SOEs in labour‐intensive sectors.     

Globalization challenges for the Mexican textile industry

The Doha round and full integration of the textile industry into the GATT have the potential to dramatically affect the Mexican textile industry. This study investigates the nature of scale economies and input relationships for that industry using a cost function with capital, labor, domestic intermediate goods, and imported intermediate goods as inputs. The findings suggest that significant economies of scale exist, and that most inputs are substitutes, although for some years some inputs are complements. Increased domestic input sensitivity to the price of foreign inputs may present challenges for the industry as it struggles to be internationally competitive.     

A ray of hope? Another look at the Italian textile industry

Despite increasing competition from newly industrializing countries, Italy’s textile industry has continued to be an important contributor to the domestic economy. Many observers attribute this resilience to the industry’s focus on quality. Here, we take note of that view but also examine production and cost relationships to explore the existence of returns to scale and the interrelationships among inputs to gain additional insights about the future prospects for this industry. The findings are consistent with constant returns to scale and a substitute relationship between all input pairs except for domestic capital and foreign intermediate goods. The results also suggest some increasing flexibility in the labor market, perhaps including informal sector arrangements, greater responsiveness of labor demand to the price of capital, and more international production sharing arrangements. An increasing elasticity over time of the demands for domestic capital and domestic intermediate goods with respect to the price of foreign substitutes was also observed. Since further economies of scale do not exist, maintaining the Italian textile industry’s reputation for outstanding quality will likely be an important survival strategy for some products. For others, production sharing may be necessary to maintain international competitiveness.     

Supply-side effects of strong energy price hikes in German industry and transportation

This article studies the short-term effects of energy price hikes on the supply of industrial goods and transport services including the repercussions on remuneration of input factors. The empirical analysis is based on a theoretical model, which assumes that the output good is produced by capital, labour and energy according to a nested production function framework where capital and energy are combined by a CES function at the intermediate stage. The output responses to energy price changes are derived, using estimates of the elasticity of substitution. While industry suffered more from the oil price shock of the late 1970s than from that of the early 1970s and the 2004?C2008 upsurge, evidence suggests the reverse for transportation. Regarding the impact on income distribution, both sectors share the same pattern, whereby in the recent episode, rising energy costs were more than compensated by falling unit labour costs, while in the 1970s, cost structures had been strained by an expansive wage policy in addition to the oil price shocks.     

POPULATION AGEING,CAPITAL INTENSITY AND LABOUR PRODUCTIVITY

This paper analyses the implications of population ageing for the capital intensity of output and, therefore, labour productivity. Population ageing leads to sectoral shifts in demand for goods and services. If such shifts occur between goods that differ in their capital intensity, there will be a change in the average capital intensity of the economy and, therefore, in average labour productivity. In order to gauge the magnitudes of such effects, the present paper reports simulations of a calibrated model with two final goods and two intermediate goods, using data for two Pacific Rim countries for comparison: the United States and Australia. The data for these countries suggest that population ageing will, on average, shift expenditure towards goods with a relatively high capital intensity. The magnitude of the increase in labour productivity according to the simulations is likely to be small, but perhaps not trivial: in the order of 1–4% per annum by 2050. This might partially offset the negative effect of ageing on living standards.     

The influence of international trade on labour productivity in services: The case of Brazil in the 1990s

In the developing world, services account for a rising share of domestic employment and international trade. Thus, it is important to know whether trade liberalization contributes to labour productivity in services. We explore this question, examining the 1990–2000 Brazilian trade liberalization. We find that growth of imports and exports strengthened labour productivity in services, but the contribution was smaller in subsectors with more college graduates, and this negative offset was larger in subsectors that received large foreign direct investment (FDI) inflows. Improved access to imported manufactured intermediate inputs raised downstream services' labour productivity and downstream manufacturing firms benefitting from tariff cuts enacted by trade partners generated spillovers that improved the labour productivity of upstream service subsectors. However, FDI inflows and investments in human and physical capital modified these downstream factors. We conclude that the Brazilian trade liberalization strengthened productivity in services, but unequally across subsectors.     

Mexican agricultural trade under the GATT

Expected effects from partially lifting tariff barriers on the Mexican agricultural sector are investigated using a restricted profit function (RPF) approach. Short-run and intermediate-run effects of the implementation of GATT minimum tariff provisions on Mexican agricultural trade are examined. Specification tests reveal the appropriateness of the RPF approach, that exports should not be aggregated with non-traded production into a single output, and that the farm sector behaves as an ‘almost’ price-taking, profit-maximizing firm. Policy simulations suggest important short-run changes in agricultural trade and chemical use and intermediate-run changes in agricultural trade, labour wage, chemical use, capital investments, and net farm income.     

Profit tax and tariff under international oligopoly

A simple model of international duopoly is developed to examine the effects of tariff and corporate profit tax. It is shown that in an export-cum-on-site-production regime, a tariff continues to be an effective instrument for shifting net profit away from foreign to domestic firms. A corporate profit tax, on the other hand, could lower the domestic output and employment and decrease the net earnings of both domestic and foreign firms. Thus when the host government's ability to raise tariff is limited, it should seriously consider a corporate tax cut policy to achieve the dual purpose of creating more jobs and increasing corporate earning at home.     

The Italian Automotive Industry and Economies of Scale

This article investigates scale economies in the Italian automobile industry as well as substitution possibilities between inputs and direct and cross-price elasticities of factor demand, utilizing a cost function with capital, labor, domestic, and imported intermediate goods inputs. Continuing European integration makes economies of scale an important issue. The study results are consistent with economies of scale in the Italian motor vehicle industry, a particularly interesting finding because the Italian automotive industry consists primarily of one firm, Fiat. The estimated direct price elasticities suggest that capital is most responsive to own price changes, and estimated cross elasticities imply that all inputs are substitutes. (JEL D 2, L 6, O 1)     

Tariff Revenue, Government Expenditure and Growth in a Small Open Economy

I develop a small open endogenous growth model with domestic and foreign intermediate goods. The Marshallian external economies in the domestic intermediate goods sector work as the engine of sustained growth. The model offers two arguments. First, imposing a trade distortion is growth- and welfare-improving if the government uses the tariff revenue for correcting the domestic distortion. Second, comparing the tariff with a lump-sum tax as a financing device, the former is certainly worse than the latter with respect to both growth and welfare if the two intermediate goods are substitutes.
JEL Classification Numbers: F43, H20.     

Insourcing,Outsourcing, and Unemployment in the Spanish Auto Industry

This paper examines the role of outsourced intermediate goods, together with capital, labor, and insourced intermediate products, as inputs in Spain's motor vehicle production. Its findings are consistent with statistically significant economies of scale. Capital and labor are found to be substitutes, as are most of the other input pairs. However, capital and outsourced intermediate goods and labor and insourced intermediate goods appear to have complementary relationships, and the latter relationship has become stronger over the period of study. Any actions that decrease the price of one of the inputs in a complementary pair will increase the demand for the other input. Since labor and outsourced intermediate goods appear to be substitutes, a decrease in import prices as a result of further European integration will decrease the demand for domestic labor and exacerbate Spain's unemployment problem. A similar result holds for insourced and outsourced intermediate goods.