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Organizing Offshoring: Middle Managers and Communication Costs

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  • Pol Antràs
  • Luis Garicano
  • Esteban Rossi-Hansberg

Abstract

Why do firms decide to offshore certain parts of their production process? What qualifies certain countries as particularly attractive locations to offshore? In this paper we address these questions with a theory of international production hierarchies in which organizations arise endogenously to make efficient use of agents' knowledge. Our theory highlights the role of host-country management skills (middle management) in bringing about the emergence of international offshoring. By shielding top management in the source country from routine problems faced by host country workers, the presence of middle managers improves the efficiency of the transmission of knowledge across countries. The model further delivers the prediction that the positive effect of middle skills on offshoring is weaker, the more advanced are communication technologies in the host country. We provide evidence consistent with this prediction.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12196.

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Date of creation: May 2006
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Publication status: published as Antras, Pol, Esteban Rossi-Hansberg, In Helpman, E., Marin D., Verdier T. (eds. The Organization of Firms in the Global Economy. Cambridge: Harvard University Press, 2007.
Handle: RePEc:nbr:nberwo:12196

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  1. Pol Antràs, 2003. "Firms, Contracts, And Trade Structure," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 118(4), pages 1375-1418, November.
  2. Aitken, Brian & Harrison, Ann & DEC, 1994. "Do domestic firms benefit from foreign direct investment? Evidence from panel data," Policy Research Working Paper Series, The World Bank 1248, The World Bank.
  3. Pol Antras & Luis Garicano & Esteban Rossi-Hansberg, 2005. "Offshoring in a Knowledge Economy," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 2067, Harvard - Institute of Economic Research.
  4. Luis Garicano & Esteban Rossi-Hansberg, 2005. "Organization and Inequality in a Knowledge Economy," NBER Working Papers 11458, National Bureau of Economic Research, Inc.
  5. repec:hrv:faseco:4784031 is not listed on IDEAS
  6. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
  7. Luis Garicano, 2000. "Hierarchies and the Organization of Knowledge in Production," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 108(5), pages 874-904, October.
  8. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Scholarly Articles 3445092, Harvard University Department of Economics.
  9. Robert C. Feenstra, 1998. "Integration of Trade and Disintegration of Production in the Global Economy," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 12(4), pages 31-50, Fall.
  10. Luis Garicano & Esteban Rossi-Hansberg, 2006. "The Knowledge Economy at the Turn of the Twentieth Century: The Emergence of Hierarchies," Journal of the European Economic Association, MIT Press, MIT Press, vol. 4(2-3), pages 396-403, 04-05.
  11. Natalia Ramondo, 2006. "Size, Geography, and Multinational Production," 2006 Meeting Papers, Society for Economic Dynamics 472, Society for Economic Dynamics.
  12. Robert E. Lipsey, 2001. "Foreign Direct Investment and the Operations of Multinational Firms: Concepts, History, and Data," NBER Working Papers 8665, National Bureau of Economic Research, Inc.
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