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A Simple Model of Service Offshoring with Time Zone Differences

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  • Toru Kikuchi
  • Ngo Van Long

Abstract

We propose a two-country monopolistic competition model of business service offshoring that captures the advantage conferred by time zone differences. We emphasize the role of the entrepreneurs, who decide how to produce business services (i.e., domestic service provision or service offshoring). It is shown that the utilization of communication networks induces a dramatic change in industrial structure due to entrepreneurial relocation (i.e., service offshoring) to take advantage of time zone differences. We also show that in the presence of moving costs for entrepreneurs, technological improvements and the resulting increase in service offshoring may reduce a country’s welfare.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2010/wp-cesifo-2010-03/cesifo1_wp2990.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2990.

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Date of creation: 2010
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Handle: RePEc:ces:ceswps:_2990

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Keywords: service offshoring; time zone differences; technological change; entrepreneurs; communication networks;

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References

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  1. Head, Charles Keith & Mayer, Thierry & Ries, John, 2007. "How Remote is the Offshoring Threat?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6542, C.E.P.R. Discussion Papers.
  2. Marjit, Sugata, 2007. "Trade theory and the role of time zones," International Review of Economics & Finance, Elsevier, Elsevier, vol. 16(2), pages 153-160.
  3. Richard B. Freeman, 2002. "The labour market in the new information economy," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 20062, London School of Economics and Political Science, LSE Library.
  4. Mary Amiti & Shang-Jin Wei, 2005. "Fear of service outsourcing: is it justified?," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 20(42), pages 308-347, 04.
  5. James E. Rauch, 2001. "Business and Social Networks in International Trade," Journal of Economic Literature, American Economic Association, vol. 39(4), pages 1177-1203, December.
  6. Zhihao Yu, 2002. "Entrepreneurship and intra-industry trade," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 138(2), pages 277-290, June.
  7. Van Long, Ngo & Riezman, Raymond & Soubeyran, Antoine, 2005. "Fragmentation and services," The North American Journal of Economics and Finance, Elsevier, Elsevier, vol. 16(1), pages 137-152, March.
  8. Barbara J. Spencer, 2005. "International Outsourcing and Incomplete Contracts," NBER Working Papers 11418, National Bureau of Economic Research, Inc.
  9. Hummels, David, 2001. "Time as a Trade Barrier," GTAP Working Papers 1152, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  10. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, American Economic Association, vol. 67(3), pages 297-308, June.
  11. Aoife Hanley & Ingrid Ott, 2009. "Web use and offshoring," Kiel Working Papers 1537, Kiel Institute for the World Economy.
  12. Mitra, Devashish & Ranjan, Priya, 2007. "Temporary Shocks and Offshoring: The Role of External Economies and Firm Heterogeneity," IZA Discussion Papers 2811, Institute for the Study of Labor (IZA).
  13. Kikuchi, Toru & Iwasa, Kazumichi, 2008. "A Simple Model of Service Trade with Time Zone Differences," MPRA Paper 9574, University Library of Munich, Germany.
  14. Schmitt, Nicolas & Yu, Zhihao, 2001. "Economies of scale and the volume of intra-industry trade," Economics Letters, Elsevier, Elsevier, vol. 74(1), pages 127-132, December.
  15. Mary Amiti & Shang-Jin Wei, 2009. "Service Offshoring and Productivity: Evidence from the US," The World Economy, Wiley Blackwell, vol. 32(2), pages 203-220, 02.
  16. Robert C. Feenstra & Barbara J. Spencer, 2005. "Contractual Versus Generic Outsourcing: The Role of Proximity," NBER Working Papers 11885, National Bureau of Economic Research, Inc.
  17. Caroline Freund & Diana Weinhold, 2002. "The Internet and International Trade in Services," American Economic Review, American Economic Association, American Economic Association, vol. 92(2), pages 236-240, May.
  18. Kiminori Matsuyama, 1995. "Complementarities and Cumulative Processes in Models of Monopolistic Competition," Journal of Economic Literature, American Economic Association, vol. 33(2), pages 701-729, June.
  19. Jones, Ronald & Kierzkowski, Henryk & Lurong, Chen, 2005. "What does evidence tell us about fragmentation and outsourcing?," International Review of Economics & Finance, Elsevier, Elsevier, vol. 14(3), pages 305-316.
  20. Martin, Philippe & I.P. Ottaviano, Gianmarco, 1999. "Growing locations: Industry location in a model of endogenous growth," European Economic Review, Elsevier, Elsevier, vol. 43(2), pages 281-302, February.
  21. Toru Kikuchi, 2003. "Interconnectivity of communications networks and international trade," Canadian Journal of Economics, Canadian Economics Association, vol. 36(1), pages 155-167, February.
  22. Viet Do & Ngo Van Long, 2007. "International Outsourcing under Monopolistic Competition: Winners and Losers," CESifo Working Paper Series 2034, CESifo Group Munich.
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Citations

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Cited by:
  1. Beladi, Hamid & Chakrabarti, Avik & Marjit, Sugata, 2014. "A public firm in a model of spatial duopoly with price discrimination," Economics Letters, Elsevier, Elsevier, vol. 123(1), pages 79-81.
  2. Beladi, Hamid & Marjit, Sugata & Weiher, Kenneth, 2011. "An analysis of the demand for skill in a growing economy," Economic Modelling, Elsevier, Elsevier, vol. 28(4), pages 1471-1474, July.
  3. Edward Anderson, 2014. "Time differences, communication and trade: longitude matters II," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 150(2), pages 337-369, May.
  4. Rebecca Tomasik, 2013. "Time zone-related continuity and synchronization effects on bilateral trade flows," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 149(2), pages 321-342, June.
  5. Mukherjee, Arijit & Suetrong, Kullapat, 2012. "Trade cost reduction and foreign direct investment," Economic Modelling, Elsevier, Elsevier, vol. 29(5), pages 1938-1945.
  6. Choi, Jai Young & Choi, E Kwan, 2013. "Financial Advantage, Outsourcing and FDI under Wage Uncertainty," Staff General Research Papers 37376, Iowa State University, Department of Economics.
  7. Beladi, Hamid & Chakrabarti, Avik & Marjit, Sugata, 2013. "Cross-border mergers in vertically related industries," European Economic Review, Elsevier, Elsevier, vol. 59(C), pages 97-108.

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