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International Outsourcing And Welfare Reduction: An Entry-Deterrence Story

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  • ARIJIT MUKHERJEE
  • YINGYI TSAI

Abstract

We show that international outsourcing may reduce welfare of the outsourcing country by deterring market entry, thus showing a new effect which is different from the employment and the quality effects creating negative impacts of outsourcing. Entry deterrence under outsourcing reduces domestic welfare if both the profit extraction and cost saving from outsourcing are sufficiently small. Copyright � 2010 The Authors. The Manchester School � 2010 Blackwell Publishing Ltd and The University of Manchester.

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Bibliographic Info

Article provided by University of Manchester in its journal The Manchester School.

Volume (Year): 78 (2010)
Issue (Month): 6 (December)
Pages: 647-659

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Handle: RePEc:bla:manchs:v:78:y:2010:i:6:p:647-659

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References

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  1. Frank Stähler, 2007. "A Model of Outsourcing and Foreign Direct Investment," Review of Development Economics, Wiley Blackwell, Wiley Blackwell, vol. 11(2), pages 321-332, 05.
  2. Gene M. Grossman & Elhanan Helpman, 2002. "Outsourcing versus FDI in Industry Equilibrium," NBER Working Papers 9300, National Bureau of Economic Research, Inc.
  3. Sugata Marjit & Arijit Mukherjee, 2008. "Profit reducing international outsourcing," The Journal of International Trade & Economic Development, Taylor & Francis Journals, Taylor & Francis Journals, vol. 17(1), pages 21-35.
  4. Sugata Marjit & Arijit Mukherjee, 2008. "International Outsourcing and R&D: Long-Run Implications for Consumers," Review of International Economics, Wiley Blackwell, Wiley Blackwell, vol. 16(5), pages 1010-1022, November.
  5. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
  6. ANDERSON, Simon P. & DE PALMA, André & NESTEROV, Yurii, 1994. "Oligopolistic Competition and the Optimal Provision of Products," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 1994034, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Pack, Howard & Saggi, Kamal, 2001. "Vertical technology transfer via international outsourcing," Journal of Development Economics, Elsevier, Elsevier, vol. 65(2), pages 389-415, August.
  8. Glass, Amy Jocelyn & Saggi, Kamal, 2001. "Innovation and wage effects of international outsourcing," European Economic Review, Elsevier, Elsevier, vol. 45(1), pages 67-86, January.
  9. Selin Sayek & Fuat Sener, 2006. "Outsourcing and Wage Inequality in a Dynamic Product Cycle Model," Review of Development Economics, Wiley Blackwell, Wiley Blackwell, vol. 10(1), pages 1-19, 02.
  10. Jones, Ronald W., 2005. "Immigration vs. outsourcing: Effects on labor markets," International Review of Economics & Finance, Elsevier, Elsevier, vol. 14(2), pages 105-114.
  11. Arijit Mukherjee & Soma Mukherjee, 2008. "Excess-Entry Theorem: The Implications Of Licensing," Manchester School, University of Manchester, University of Manchester, vol. 76(6), pages 675-689, December.
  12. Hartmut Egger & Peter Egger, 2001. "Market Concentration and International Outsourcing," WIFO Working Papers, WIFO 166, WIFO.
  13. Gene M. Grossman & Elhanan Helpman, 2002. "Integration Versus Outsourcing In Industry Equilibrium," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 117(1), pages 85-120, February.
  14. Erica L. Groshen & Simon Potter, 2003. "Has structural change contributed to a jobless recovery?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, Federal Reserve Bank of New York, vol. 9(Aug).
  15. Mitra, Devashish & Ranjan, Priya, 2007. "Temporary Shocks and Offshoring: The Role of External Economies and Firm Heterogeneity," IZA Discussion Papers 2811, Institute for the Study of Labor (IZA).
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Cited by:
  1. Tarun Kabiraj & Uday Bhanu Sinha, 2011. "Strategic Outsourcing with Technology Transfer," Working papers, Centre for Development Economics, Delhi School of Economics 203, Centre for Development Economics, Delhi School of Economics.
  2. Tarun Kabiraj & Uday Bhanu Sinha, 2014. "Strategic Outsourcing with Technology Transfer under Cournot Competition," Economics Bulletin, AccessEcon, vol. 34(2), pages 1133-1140.

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