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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. Aoife Hanley & Ingrid Ott, 2009. "Web use and offshoring," Kiel Working Papers 1537, Kiel Institute for the World Economy.
  2. 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).
  3. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  4. Kikuchi, Toru & Iwasa, Kazumichi, 2010. "A simple model of service trade with time zone differences," International Review of Economics & Finance, Elsevier, vol. 19(1), pages 75-80, January.
  5. 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.
  6. Viet Do & Ngo Van Long, 2007. "International Outsourcing under Monopolistic Competition: Winners and Losers," CESifo Working Paper Series 2034, CESifo Group Munich.
  7. Richard B. Freeman, 2002. "The Labour Market in the New Information Economy," NBER Working Papers 9254, National Bureau of Economic Research, Inc.
  8. Schmitt, Nicolas & Yu, Zhihao, 2001. "Economies of scale and the volume of intra-industry trade," Economics Letters, Elsevier, vol. 74(1), pages 127-132, December.
  9. Barbara J. Spencer, 2005. "International Outsourcing and Incomplete Contracts," NBER Working Papers 11418, National Bureau of Economic Research, Inc.
  10. Zhihao Yu, 2002. "Entrepreneurship and intra-industry trade," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 138(2), pages 277-290, June.
  11. Mary Amiti & Shang-Jin Wei, 2005. "Fear of service outsourcing: is it justified?," Economic Policy, CEPR & CES & MSH, vol. 20(42), pages 308-347, 04.
  12. Jones, Ronald & Kierzkowski, Henryk & Lurong, Chen, 2005. "What does evidence tell us about fragmentation and outsourcing?," International Review of Economics & Finance, Elsevier, vol. 14(3), pages 305-316.
  13. Keith Head & Thierry Mayer & John Ries, 2007. "How Remote is the Offshoring Threat?," Working Papers 2007-18, CEPII research center.
  14. 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.
  15. Toru Kikuchi, 2003. "Interconnectivity of communications networks and international trade," Canadian Journal of Economics, Canadian Economics Association, vol. 36(1), pages 155-167, February.
  16. David Hummels & Georg Schaur, 2012. "Time as a Trade Barrier," NBER Working Papers 17758, 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, vol. 92(2), pages 236-240, May.
  18. 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.
  19. Marjit, Sugata, 2007. "Trade theory and the role of time zones," International Review of Economics & Finance, Elsevier, vol. 16(2), pages 153-160.
  20. Van Long, Ngo & Riezman, Raymond & Soubeyran, Antoine, 2005. "Fragmentation and services," The North American Journal of Economics and Finance, Elsevier, vol. 16(1), pages 137-152, March.
  21. Martin, Philippe & Ottaviano, Gianmarco Ireo Paolo, 1996. "Growing Locations: Industry Location in a Model of Endogenous Growth," CEPR Discussion Papers 1523, C.E.P.R. Discussion Papers.
  22. 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.
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Cited by:
  1. Beladi, Hamid & Marjit, Sugata & Weiher, Kenneth, 2011. "An analysis of the demand for skill in a growing economy," Economic Modelling, Elsevier, vol. 28(4), pages 1471-1474, July.
  2. Mukherjee, Arijit & Suetrong, Kullapat, 2012. "Trade cost reduction and foreign direct investment," Economic Modelling, Elsevier, vol. 29(5), pages 1938-1945.
  3. Rebecca Tomasik, 2013. "Time zone-related continuity and synchronization effects on bilateral trade flows," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 149(2), pages 321-342, June.
  4. Beladi, Hamid & Chakrabarti, Avik & Marjit, Sugata, 2014. "A public firm in a model of spatial duopoly with price discrimination," Economics Letters, Elsevier, vol. 123(1), pages 79-81.
  5. Beladi, Hamid & Chakrabarti, Avik & Marjit, Sugata, 2013. "Cross-border mergers in vertically related industries," European Economic Review, Elsevier, vol. 59(C), pages 97-108.
  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.

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