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 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.     

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.     

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.     

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.     

A requiem for the Australian motor vehicle industry

The last automobiles manufactured in Australia rolled off the assembly line in the fall of 2017. This article looks at some of the factors that have impacted the industry since 1968 and led to its demise, including a high value of the Australian dollar in recent years, strategic decisions on the part of parent companies and reductions in governmental support and tariff protection. We estimate a cost function for the industry with inputs of domestic capital and labour and insourced intermediate goods as well as imported intermediate goods. The findings include that the remaining firms are operating in an output range of strongly statistically significant economies of scale, and that all of the input pairs are substitutes except for statistically significant complementary relationships between capital and domestic intermediate goods and labour and foreign intermediate goods. Unexpected results are that an increase in output per assembly plant appears to have a positive effect on total cost, while an increase in the effective tariff and an increase in the number of models appears to have a negative effect. One explanation for these robust but unexpected findings may be that total profit contribution is a part of total cost, and, therefore, factors that increase total profit contribution will also increase total cost.     

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.     

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.     

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)     

Scale properties and input substitution in mexican electrical equipment manufacturing

This paper investigates the existence of scale economies in the Mexican electrical equipment industry and estimates direct and cross price input demand elasticities using a translog cost function. Although the estimated value of the cost elasticity was consistent with economies of scale, it was significantly less than 1 only at a significance level slightly greater than 5 percent. The estimated cross price elasticities indicated that all of the inputs were substitutes. Nevertheless, while lower trade barriers under the North American Free Trade Agreement, ceteris paribus, may have a short-term adverse effect on the demand for labor in this industry by increasing imports of cheaper capital and intermediate goods, the relatively low values for E_LK and E_LM also support the conclusion that the impact on employment may be relatively small.This project was supported by the Faculty Development Leave Program at the University of Texas at San Antonio.     

Intraindustry trade in intermediate goods

Since intermediate goods play such a vital role in foreign trade, this paper develops a model that explains the benefits from intraindustry trade in differentiated intermediate goods. In comparison with a situation of autarchy, this type of trade causes an increase in the number of intermediate good varieties. In this way, the producers of final goods will benefit from intermediate good varieties, which are closer to the ideal for a specific production process. At the same time, the producers of intermediate goods will, under conditions of international division of labor, benefit from economies of scale.     

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.     

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.     

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.     

European Integration and Production in the French Economy

Effects of greater European integration on the French economy are explored with an aggregate cost function. Input direct price elasticities are inelastic, but greatest (absolute value) for capital and lowest for imports. Cross-price elasticities suggest inputs are substitutes and are higher for domestic inputs than domestic input and imports pairs. As trade restrictions fall, effects on domestic input demand may increase as substitution elasticities rise. Inverse output supply price elasticities indicate domestic input prices are relatively important factors affecting consumption goods prices and import prices more important for investment goods. Thus, import price decreases may stimulate investment and growth. (JEL F14 , O10 , O12 )     

Production and costs in the South African motor vehicle industry

This study investigates the existence of economies of scale in the South African motor vehicle industry as well as the substitution possibilities between input pairs and the direct and cross-price elasticities of demand for the various inputs. Because of data limitations, a translog cost function was estimated for only a three input model corresponding to a homogeneous production function involving capital, labour and intermediate goods. The issue of the existence of economies of scale in the South African motor vehicle industry is a particularly important one because South Africa once again is a member of GATT and a full participant in the international trade arena. The null hypothesis of constant returns to scale was rejected at the 0.5% level of significance. Thus, the results of this model are certainly consistent with economies of scale in the South African motor vehicle industry. The estimated direct price elasticities were consistent with the hypothesis that, during the past two decades, capital was the productive factor with the most elastic demand, and the estimated cross-elasticities between input pairs generally supported the hypothesis that all inputs are substitutes.     

The impacts of imports and trade liberalization in Brazil: Insights from an aggregate cost function

Brazil has faced and continues to struggle with difficult economic challenges, including achieving noninflationary economic growth and a manageable external deficit. This paper presents the results of the estimation of an aggregate translog cost function with inputs of domestic capital and labor and imports and outputs of consumption and investment goods. The resulting calculated elasticities give insights into the relationships among the inputs, as well as the possible impacts of further reducing international trade barriers. The findings suggest that all of the inputs are substitutes for one another and that an increase in imports may have at least short-run negative effects on the demand for domestic capital and labor. However, imports appear to be particularly important in the production of investment goods, so an increase in imports may result in a more than proportionate increase in the output of those products and enhance the long-term growth of the economy. The responses to current challenges facing Brazil will affect its future economic growth as well as have a broader impact on the international scene. The results described here may help to inform policy makers as they address these issues, particularly with respect to international trade policies.     

垄断竞争、中间产品与城市规模

从分工经济与城市规模之间关系的角度,运用Dixit-Stiglitz模型框架下经济活动的规模收益递增原理,在城市内部最终产品生产企业利润最大化的条件下,系统讨论了投入的中间产品种类数与城市人口规模之间的关系、中间产品之间的替代性对城市均衡人口规模的反馈作用,以及城市内部中间产品专业化水平和互补经济程度之间的关系。在此基础上,利用广东省城市增长的部分数据进行了实证分析。认为:经济活动的集聚形成了城市;在城市体积增长和城市系统随产业的专业化与多样化发展而演进的过程中,城市规模经济的实现除了依赖生产要素流动外,最终产品生产企业对中间产品投入的需求也具有不可忽视的作用。     

Quality-Differentiated Inputs and Trade In Vertically Related Markets*

This paper presents an international trade model of vertically related markets with quality differentiation at the stage of the intermediate good. Domestic input producers are at a disadvantage relative to higher quality foreign suppliers in providing inputs to a domestic final-good producer. the input producer may be driven out of the market unless policies enacted by the domestic government can encourage domestic final-good firms to use the domestic input. Results show that multiple tariffs and direct production subsidies are the most beneficial policy options.     

Measuring Price Responsiveness Under a Profit Maximization Framework

The distinguishing feature of the study is in using a globally flexible functional form that permits one to calculate different types of elasticities under both constant and variable output hypotheses. The Symmetric Generalized McFadden cost function alongwith the output supply condition form the basis of the econometric model. To measure inputsubstitutabilities, we used Alien-Uzawa, Morishima, and Shadow elasticities of substitution. Empirical results, based on 300 farm households from West Bengal, India, show that fertilizer is most price sensitive input. It is a gross substitute for manure and human labor but complement to bullock labor. Manure is a gross substitute for all the inputs whereas human labor is gross complement to bullock labor. Using the Morishima measure we find that the fertilizer and bullock labor are complements when the price of the latterchanges. Similar complementary relationship is found between bullock and human labor due to changes in the price of human labor. All other inputs are Morishima substitutes. The Shadow elasticity of substitution estimates indicate that all factors are substitutes. The estimate of returns to scale indicates the presence of diminishing returns to scale.