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Competition and the location of overseas assembly

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  • Deborah L. Swenson

Abstract

How does international competition affect overseas outsourcing? To address this question, this paper studies production decisions in the U.S.'s overseas assembly program (OAP). In this setting, a number of regularities emerge. First, prior participation is highly correlated with current participation, which suggests that sunk costs influence outsourcing choices. Second, increases in own-country costs and declines in competitor-country costs reduce participation probabilities. In addition, these persistence and cost effects are much larger for outsourcing in developing countries. Finally, outsourcing responses appear to reflect differences in 'market thickness,' as cost sensitivity generally rises with competitor presence.

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Bibliographic Info

Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 40 (2007)
Issue (Month): 1 (February)
Pages: 155-175

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Handle: RePEc:cje:issued:v:40:y:2007:i:1:p:155-175

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References

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Cited by:
  1. João Amador & Sónia Cabral, 2014. "Global Value Chains: Surveying Drivers, Measures and Impacts," Working Papers w201403, Banco de Portugal, Economics and Research Department.
  2. Yamashita, Nobuaki, 2011. "Production sharing and trade flows: A comparative analysis of Japan and the US," Journal of Asian Economics, Elsevier, vol. 22(5), pages 383-397, October.

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