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Domestic And Global Sourcing

Author

Listed:
  • WENLI CHENG

    (Department of Economics, Monash University, Caulfield East, Victoria, 3145, Australia)

  • DINGSHENG ZHANG

    (Department of Economics, Monash University, Clayton, Victoria, 3800, Australia;
    China Economics and Management Academy, Central University of Finance and Economics, No. 39 College South Road, Beijing, 100081, China)

Abstract

This paper develops a general equilibrium Ricardian model with transaction costs to investigate the determinants of the firm's sourcing decision. It derives conditions under which different sourcing choices and corresponding trade patterns occur in general equilibrium. These conditions suggest that,inter alia, the choice between vertical integration and specialisation depends on the relative internal transaction costs associated with vertical integration and external transaction costs associated with international outsourcing; and that the equilibrium sourcing structures and trade patterns are consistent with a refined theory of comparative advantage that incorporates the effects of transaction costs in international trade.

Suggested Citation

  • Wenli Cheng & Dingsheng Zhang, 2006. "Domestic And Global Sourcing," Division of Labor & Transaction Costs (DLTC), World Scientific Publishing Co. Pte. Ltd., vol. 2(01), pages 37-53.
    • Handle: RePEc:wsi:dltcxx:v:02:y:2006:i:01:n:s0219871106000275
    DOI: 10.1142/S0219871106000275
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    References listed on IDEAS

    as
    1. Yew-Kwang Ng & Heling Shi & Guang-Zhen Sun (ed.), 2003. "The Economics of E-Commerce and Networking Decisions," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-4039-3837-4.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Endogenous sourcing decisions; transaction costs; Ricardian model;
    All these keywords.

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D - Microeconomics
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • F - International Economics
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • L - Industrial Organization
    • O - Economic Development, Innovation, Technological Change, and Growth

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