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Trade Liberalization and Strategic Outsourcing

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Author Info
Chen, Yongmin
Ishikawa, Jota
Yu, Zhihao

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Abstract

This paper develops a theory of strategic outsourcing that arises due to trade liberalization. With trade liberalization, a domestic firm may choose to purchase the intermediate good from a more efficient foreign producer, who also competes with the domestic firm in the final-good market. This can result in higher prices for both the intermediate and final goods. Although trade liberalization in the final product would lower the price of the final good, it could cause the price of the intermediate product to either increase or decrease, depending on the characteristics of the final products. Therefore, in the presence of strategic outsourcing, trade liberation can have ambiguous effects on consumer prices, depending on the relative tariff reductions for intermediate and final goods.

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File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/17029/1/070econDP01-04.pdf
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Paper provided by Graduate School of Economics, Hitotsubashi University in its series Discussion Papers with number 2001-04.

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Length: 19, [2] p.
Date of creation: May 2001
Date of revision:
Handle: RePEc:hit:econdp:2001-04

Note: May 8, 2001
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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Chen, Yongmin, 2001. "On Vertical Mergers and Their Competitive Effects," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 667-85, Winter.
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  2. Feenstra, R.C. & Hanson, G.H., 1995. "Foreign Investment, Outsourcing and Relative Wages," Department of Economics 95-14, California Davis - Department of Economics.
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  3. Raff, Horst & Schmitt, Nicolas, 2000. "Endogenous Vertical Restraints in International Trade," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  4. Hwang, Hae-Shin & Schulman, Craig T., 1993. "Strategic non-intervention and the choice of trade policy for international oligopoly," Journal of International Economics, Elsevier, vol. 34(1-2), pages 73-93, February. [Downloadable!] (restricted)
  5. Spencer, Barbara J. & Jones, Ronald W., 1992. "Trade and protection in vertically related markets," Journal of International Economics, Elsevier, vol. 32(1-2), pages 31-55, February. [Downloadable!] (restricted)
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  6. Spencer, Barbara J & Jones, Ronald W, 1991. "Vertical Foreclosure and International Trade Policy," Review of Economic Studies, Blackwell Publishing, vol. 58(1), pages 153-70, January. [Downloadable!] (restricted)
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  7. Hanson, Gordon H, 1996. "Localization Economies, Vertical Organization, and Trade," American Economic Review, American Economic Association, vol. 86(5), pages 1266-78, December. [Downloadable!] (restricted)
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  8. Ishikawa, Jota & Spencer, Barbara J., 1999. "Rent-shifting export subsidies with an imported intermediate product," Journal of International Economics, Elsevier, vol. 48(2), pages 199-232, August. [Downloadable!] (restricted)
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  9. 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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  10. Ruth R. Raubitschek & Barbara J. Spencer, 1994. "High-Cost Domestic Joint Ventures and International Competition: Do Domestic Firms Gain?," NBER Working Papers 4804, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. repec:fth:simfra:00-4 is not listed on IDEAS
  12. John McLaren, 2000. ""Globalization" and Vertical Structure," American Economic Review, American Economic Association, vol. 90(5), pages 1239-1254, December. [Downloadable!] (restricted)
  13. 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. [Downloadable!] (restricted)
  14. Matthew J. Slaughter, 1995. "Multinational Corporations, Outsourcing, and American Wage Divergence," NBER Working Papers 5253, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  15. Ishikawa, Jota & Lee, Ki-Dong, 1997. "Backfiring tariffs in vertically related markets," Journal of International Economics, Elsevier, vol. 42(3-4), pages 395-423, May. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Dermot, Leahy & Catia , Montagna, 2007. "‘Make-or-Buy’ in International Oligopoly and the Role of Competitive Pressure," MPRA Paper 7468, University Library of Munich, Germany. [Downloadable!]
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  2. Yutian Chen & Pradeep Dubey & Debapriya Sen, 2006. "Outsourcing Induced by Strategic Competition," Levine's Bibliography 321307000000000674, UCLA Department of Economics. [Downloadable!]
    Other versions:
  3. Zhihao Yu, 2003. "A New Push on An Old Fundamental: Understanding the Patterns of Outsourcing," Carleton Economic Papers 03-08, Carleton University, Department of Economics. [Downloadable!]
  4. Larrosa, Juan MC, 2007. "Optimal growth with intermediate goods interdependence: A difference game approach," MPRA Paper 4675, University Library of Munich, Germany. [Downloadable!]
  5. Pierce, Andrea & Sen, Debapriya, 2009. "Outsourcing versus technology transfer: Hotelling meets Stackelberg," MPRA Paper 15673, University Library of Munich, Germany. [Downloadable!]
  6. Frode Meland & Odd Rune Straume, 2006. "Outsourcing in Contests," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  7. Jota Ishikawa & Hodaka Morita & Hiroshi Mukunoki, 2008. "FDI in Post-Production Services and Product Market Competition," Global COE Hi-Stat Discussion Paper Series gd08-004, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
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  8. G. Rossini, 2005. "Pitfalls in private and social incentives of vertical crossborder outsourcing," Working Papers 536, Dipartimento Scienze Economiche, Universita' di Bologna. [Downloadable!]
  9. Zhihao Yu, 2003. "IT, Production Specialization, and Division of Labor: A Smith-Ricardo Model of International Trade," Carleton Economic Papers 03-06, Carleton University, Department of Economics. [Downloadable!]
  10. OLIVIER, Jacques & GOH, Ai ting, 2003. "International Vertical Specialization, Imperfect Competition and Welfare," Les Cahiers de Recherche 791, HEC Paris. [Downloadable!]
  11. Goh, Ai Ting & Olivier, Jacques, 2004. "International Vertical Specializations, Imperfect Competition and Welfare," CEPR Discussion Papers 4311, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  12. Lommerud, Kjell Erik & Meland, Frode & Straume, Odd Rune, 2008. "Can Deunionization Lead to International Outsourcing?," CEPR Discussion Papers 6998, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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