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Outsourcing, Public Input Provision and Policy Cooperation

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  • Aronsson, Thomas

    ()
    (Department of Economics, Umeå University)

  • Koskela, Erkki

    ()
    (Department of Economics)

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    Abstract

    This paper concerns public input provision as an instrument for redistribution under international outsourcing by using a model-economy comprising two countries, North and South, where firms in the North may outsource part of their low-skilled labor intensive production to the South. We consider two interrelated issues: (i) the incentives for each country to modify the provision of public input goods in response to international outsourcing, and (ii) whether international outsourcing justifies policy cooperation. If the public input good is substitutable for (complementary with) outsourcing in terms of the production function faced by northern firms, then outsourcing contributes to increase (decrease) the public input provision in the North. For the South, the optimal policy response depends on the level of outsourcing. We also show how policy cooperation with respect to public input provision can be designed to increase the overall social welfare.

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    Bibliographic Info

    Paper provided by Umeå University, Department of Economics in its series Umeå Economic Studies with number 799.

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    Length: 25 pages
    Date of creation: 17 Dec 2009
    Date of revision:
    Handle: RePEc:hhs:umnees:0799

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    Postal: Department of Economics, Umeå University, S-901 87 Umeå, Sweden
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    Related research

    Keywords: Outsourcing; redistribution; public input goods; asymmetric information;

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