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A New Push on An Old Fundamental: Understanding the Patterns of Outsourcing

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Author Info
Zhihao Yu () (Department of Economics, Carleton University)

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Abstract

For what kind of intermediate input/service do firms often go outsourcing? This paper develops a model of two-stage production in which economies of scope are central to the production of both the intermediate and final good. The model is able to explain the patterns of outsourcing from the degree of product differentiation, economies of scope, and economies of scale in production of the intermediate input relative to that of the final good. The recent surge of outsourcing activities is explained by a new push (progress in the general purpose technology, e.g., information technology) on an old fundamental (economies of scope in production).

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Publisher Info
Paper provided by Carleton University, Department of Economics in its series Carleton Economic Papers with number 03-08.

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Length: 22 pages
Date of creation: 15 Jul 2003
Date of revision:
Publication status: Published: Carleton Economic Paper
Handle: RePEc:car:carecp:03-08

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Related research
Keywords: Outsourcing; Economies of Scope; Vertical Disintegration; Vertical and horizontal Specialisation;

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  1. Grossman, G.M. & Helpman, E., 2001. "Integration vs. Outsourcing in Industry Equilibrium," Papers 2001-7, Tel Aviv.
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  2. Robert C. Feenstra, . "Integration Of Trade And Disintegration Of Production In The Global Economy," Department of Economics 98-06, California Davis - Department of Economics. [Downloadable!]
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  3. Eaton, B Curtis & Schmitt, Nicolas, 1994. "Flexible Manufacturing and Market Structure," American Economic Review, American Economic Association, vol. 84(4), pages 875-88, September. [Downloadable!] (restricted)
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  4. Hanson, Gordon H, 1996. "Localization Economies, Vertical Organization, and Trade," American Economic Review, American Economic Association, vol. 86(5), pages 1266-78, December. [Downloadable!] (restricted)
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  5. Chen, Yongmin & Ishikawa, Jota & Yu, Zhihao, 2004. "Trade liberalization and strategic outsourcing," Journal of International Economics, Elsevier, vol. 63(2), pages 419-436, July. [Downloadable!] (restricted)
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  6. John McLaren, 2000. ""Globalization" and Vertical Structure," American Economic Review, American Economic Association, vol. 90(5), pages 1239-1254, December. [Downloadable!] (restricted)
  7. David Hummels & Jun Ishii & Kei-Mu Yi, 1999. "The nature and growth of vertical specialization in world trade," Staff Reports 72, Federal Reserve Bank of New York. [Downloadable!]
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  8. Kei-Mu Yi, 2003. "Can Vertical Specialization Explain the Growth of World Trade?," Journal of Political Economy, University of Chicago Press, vol. 111(1), pages 52-102, February. [Downloadable!] (restricted)
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