Economic effects of trade patterns on productivity

Abstract

The recent globalized world economy has strengthened competition in all industries. Facing intensive competitive environment, the firm’s choice of trade pattern is one of the most important strategies in enhancing its competitiveness. Among inter-firm trade patterns the cooperative trade system has proved to be superior to arms-length or market-oriented trade in the long run. Within the cooperative trade system, the transition from the dedicated (single supplier) trade to the network trade is proving a remarkable phenomenon. In this paper, firstly through the literature reviews and the theoretical model, we compare the relative economic efficiencies between dedicated and network trade systems in terms of facilitation of competition, cost reduction, quality improvement, knowledge and information sharing, and learning effect. Then in empirical analysis, we examine the relationship between alternative trade patterns and the productivity of the automobile industry. The main results of the theoretical model show that network trade results in a higher profit level than dedicated trade as a rule, although network trade is less stable than dedicated trade. Empirical study reveals that increasing network trade leads to higher productivity.