Recent contributions on offshoring often assume that firms can freely split their production process into separate steps which can be ranked according to the cost savings from producing abroad. We replace this assumption by the notion of a technologically determined sequence of production steps. In our model, cost savings from offshoring fluctuate along the production chain, and moving unfinished goods across borders causes transport costs. We show that, in such a setting, firms may refrain from offshoring even if relocating individual steps would be advantageous. Conversely, small variations in model parameters may lead to a large increase in offshoring activities.
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number
CESifo Working Paper No. 2564.
Find related papers by JEL classification: D24 - Microeconomics - - Production and Organizations - - - Production; Capital and Total Factor Productivity; Capacity F10 - International Economics - - Trade - - - General F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business