Trade Liberalization, Outsourcing, and Firm Productivity

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Trade Liberalization, Outsourcing, and Firm Productivity

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Ralph Ossa

Abstract

Empirical evidence suggests that trade liberalization increases firm productivity. This paperoffers a novel explanation for this finding. I develop a simple general equilibrium model oftrade in which trade liberalization leads to outsourcing as firms focus on their corecompetencies in response to tougher competition. Since firms are the better at performingtasks the closer they are to their core competencies, this outsourcing increases firmproductivity. Moreover, I also investigate the links between various technological parametersand outsourcing. In particular, I analyze how technological progress, changes in fixed costs,and changes in internal governance costs affect firms' integration decisions.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0814.

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Date of creation: Jul 2007
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Handle: RePEc:cep:cepdps:dp0814

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Find related papers by JEL classification:
F10 - International Economics - - Trade - - - General
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

This paper has been announced in the following NEP Reports:

NEP-ALL-2007-12-15 (All new papers)
NEP-BEC-2007-12-15 (Business Economics)
NEP-INT-2007-12-15 (International Trade)

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Philippe Aghion & Robin Burgess & Stephen Redding & Fabrizio Zilibotti, 2005. "Entry Liberalization and Inequality in Industrial Performance," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 291-302, 04/05. [Downloadable!] (restricted)
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Andrew B. Bernard & Stephen J. Redding & Peter K. Schott, 2006. "Multi-Product Firms and Trade Liberalization," NBER Working Papers 12782, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Andrew B. Bernard & Stephen Redding & Peter K. Schott, 2006. "Multi-Product Firms and Trade Liberalization," CEP Discussion Papers dp0769, Centre for Economic Performance, LSE. [Downloadable!]
- Andrew Bernard & Stephen Redding & Peter Schott, 2009. "Multi-Product Firms and Trade Liberalization," Working Papers 09-21, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
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Other versions:
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Other versions:
- Andrew B Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2000. "Plants and productivity in international trade," Working Papers 00-08, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
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Other versions:
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- Eckel, Carsten & Neary, J Peter, 2006. "Multi-Product Firms and Flexible Manufacturing in the Global Economy," CEPR Discussion Papers 5941, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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Other versions:
- Daniel Trefler, 2001. "The Long and Short of the Canada-U.S. Free Trade Agreement," NBER Working Papers 8293, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Other versions:
- Marc J. Melitz & Gianmarco I.P. Ottaviano, 2005. "Market Size, Trade, and Productivity," Development Working Papers 201, Centro Studi Luca d\'Agliano, University of Milano. [Downloadable!]
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Other versions:
- Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Sofronis Clerides & Saul Lach & James Tybout, 1996. "Is "learning-by-exporting" important? Micro-dynamic evidence from Colombia, Mexico and Morocco," Finance and Economics Discussion Series 96-30, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
Other versions:
- Sofronis Clerides & Saul Lach & James Tybout, 1996. "Is "Learning-by-Exporting" Important? Micro-Dynamic Evidence from Colombia, Mexico and Morocco," NBER Working Papers 5715, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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repec:rus:hseeco:122439 is not listed on IDEAS

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