TY  - JOUR
AU  - Feenstra,Robert C.
AU  - Chen,Yongmin
TI  - Buyer Investment, Product Variety, and Intrafirm Trade
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11752
PY  - 2005
Y2  - November 2005
UR  - http://www.nber.org/papers/w11752
L1  - http://www.nber.org/papers/w11752.pdf
N1  - Author contact info:
Robert C. Feenstra
Department of Economics
University of California, Davis
One Shields Avenue
Davis, CA  95616
Tel: 530/752-7022
Fax: 530/752-9382
E-Mail: rcfeenstra@ucdavis.edu

Yongmin Chen
Department of Economics
University of Colorado at Boulder
Boulder, CO 80309
E-Mail: Yongmin.chen@colorado.edu
AB  - This paper studies a simple model of buyer investment and its effect on the variety and vertical structure of international trade. A distinction is made between two types of buyer investment: "flexible" and "specific." Their interactions with the entry and pricing incentives of suppliers are analyzed. It is shown that (i) there can be multiple equilibria in the variety of products traded, and (ii) less product variety is associated with more intrafirm trade. The possibility of multiple equilibria is consistent with the observation that some similar economies, such as Taiwan and South Korea, differ substantially in their export varieties to the U.S. A formal empirical analysis confirms the negative correlation between product variety and intrafirm trade.
ER  -