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Outsourcing and International Production of a Multinational: A Theoretical Model and Empirical Evidence from Toyota, Thailand

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Author Info
Witada Anukoonwattaka
Abstract

A stylised partial equilibrium model of an MNC is developed. The model incorporates key aspects of outsourcing in a world of falling trade costs. The multinational, with firm-specific capital operates in two countries that differ in factor prices; it produces final goods with firm specific capital but can source multiple intermediate goods internally from each subsidiary (produced with firm-specific capital and labour), or outsource them from domestic or foreign suppliers. There is a potential trade off between scale of final good production and scope of in-house component production. Trade liberalization can affect both country and organization choices of the firm’s component sourcing and final-good production. We also use a previously unused data set on component trade of Toyota in Southeast Asia to conduct an empirical investigation informed by the model insights.

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File URL: http://www.ifw-kiel.de/VRCent/DEGIT/paper/degit_12/C012_045.pdf
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Publisher Info
Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c012_045.

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Length: 35 pages JEL Classification: F14, F15, F23, L22, L62
Date of creation: Jun 2007
Date of revision:
Handle: RePEc:deg:conpap:c012_045

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Keywords: Intra-firm Trade Trade in intermediate inputs direct foreign investment multinational corporations and outsourcing

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  1. Studies on the automobile industry
References listed on IDEAS
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  1. Robert C. Feenstra & Gordon H. Hanson & Deborah L. Swenson, . "Offshore Assembly From The United States: Production Characteristics Of The 9802 Program," Department of Economics 98-10, California Davis - Department of Economics. [Downloadable!]
  2. Antràs, Pol & Helpman, Elhanan, 2004. "Global Sourcing," CEPR Discussion Papers 4170, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  3. David Hummels & Dana Rapoport & Kei-Mu Yi, 1998. "Vertical specialization and the changing nature of world trade," Economic Policy Review, Federal Reserve Bank of New York, issue Jun, pages 79-99. [Downloadable!]
  4. Jörn Kleinert, 2003. "Growing Trade in Intermediate Goods: Outsourcing, Global Sourcing, or Increasing Importance of MNE Networks?," Review of International Economics, Blackwell Publishing, vol. 11(3), pages 464-482, 08. [Downloadable!] (restricted)
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  5. Robert C. Feenstra & Gordon H. Hanson, 1996. "Globalization, Outsourcing, and Wage Inequality," NBER Working Papers 5424, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Deborah L. Swenson, 2004. "Overseas Assembly and Country Sourcing Choices," NBER Working Papers 10697, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. John McLaren, 2000. ""Globalization" and Vertical Structure," American Economic Review, American Economic Association, vol. 90(5), pages 1239-1254, December. [Downloadable!] (restricted)
  8. Gene M. Grossman & Esteban Rossi-Hansberg, 2006. "Trading Tasks: A Simple Theory of Offshoring," NBER Working Papers 12721, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Barbara Spencer, 2005. "International outsourcing and incomplete contracts," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1107-1135, November. [Downloadable!] (restricted)
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  10. Robert C. Feenstra & Gordon H. Hanson, 2005. "Ownership and Control in Outsourcing to China: Estimating the Property-Rights Theory of the Firm," The Quarterly Journal of Economics, MIT Press, vol. 120(2), pages 729-761, May.
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  11. Gene M. Grossman & Elhanan Helpman, 2002. "Integration Versus Outsourcing In Industry Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 85-120, February. [Downloadable!] (restricted)
  12. Helpman, Elhanan, 1985. "Multinational Corporations and Trade Structure," Review of Economic Studies, Blackwell Publishing, vol. 52(3), pages 443-57, July. [Downloadable!] (restricted)
  13. Gene M. Grossman & Elhanan Helpman, 2003. "Outsourcing Versus FDI in Industry Equilibrium," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 317-327, 04/05. [Downloadable!] (restricted)
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