Managing Transaction Costs in the Era of Globalization
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Managing Transaction Costs in the Era of Globalization

  • Advances in New Institutional Analysis series

Frank A.G. den Butter

Frank A.G. den Butter explains the importance and means of keeping transaction costs as low as possible. He illustrates how this transaction management can contribute to making firms and nations more competitive by exploiting gains from the division of labour and international fragmentation of production, and uses relevant case studies to illustrate how value is created by reducing transaction costs. Policy recommendations for strengthening the competitive position of trading nations and reducing implementation costs of government policy are presented, and management methods for creating value in organizing production on a global scale are prescribed.
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Chapter 3: Empirics of the hub function of transaction economies

Frank A.G. den Butter

Extract

This chapter provides data on the influence of globalization on trade flows, and more specifically on how some European transaction economies fulfil their function as a hub in the trade flows between Europe and the rest of the world. The focus is on the transaction function of the Netherlands, which has a special role as a gateway to Europe, with large trade surpluses to the EU and trade deficits to Asia and the Middle East. To a lesser extent, this is also true for Belgium. The reverse holds for the hub function of Switzerland. That country buys in Europe and sells to the rest of the world. The chapter also looks at Singapore, which has a specific role as a trade hub in South East Asia. Attention is paid to transit trade and re-exports. A characteristic of globalization with ongoing specialization and fragmentation of production is that trade is growing faster than production. This is illustrated in Tables 3.1 and 3.2, which present the average yearly real GDP and trade growth in various countries and parts of the world during the last decades. Table 3.1 shows that GDP growth has been relatively moderate in the G7 between 1981 and 2007. Japan, especially, witnessed low growth rates between 1996 and 2007. The moderate GDP growth in these countries is linked to productivity increases. A major development is the rapid growth of the BRIC countries in the last decades.

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