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Globalization and firm‐level cost structure
Author(s) -
Ding Hui,
Lu Xiaoyan,
Zheng Ying
Publication year - 2019
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12409
Subject(s) - openness to experience , fixed cost , economics , variable cost , productivity , globalization , variable (mathematics) , context (archaeology) , rigidity (electromagnetism) , cost structure , international trade , industrial organization , microeconomics , macroeconomics , market economy , psychology , social psychology , mathematical analysis , paleontology , mathematics , structural engineering , biology , engineering
Abstract In this study, we draw on economic theories of cost structure and the effects of international trade on firms' productivity to assess firm‐level cost behavior in the context of globalization. We investigate why and how trade openness affects firms' cost structure by examining the changes of fixed inputs along with those in capacity levels. Using a sample consisting of 25 countries from 2000 to 2014, we find that trade openness does significantly affect firms fixed and variable cost inputs, which indicate that production uncertainty along with international trade is essential to the cost structure decision in terms of cost rigidity. Furthermore, larger firms are more likely to adopt a rigid cost structure with higher fixed costs and lower variable costs because they are more involved in the international economy and more exposed to associated uncertainties.