Outsourcing and Volatility
AbstractWhile outsourcing of production from the U.S. to Mexico has been hailed in Mexico as a valuable engine of growth, recently there have been misgivings regarding its fickleness and volatility. This paper is among the first in the trade literature to study the second moment properties of outsourcing. We begin by documenting a new stylized fact: the maquiladora outsourcing industries in Mexico experience fluctuations in value added that are roughly twice as volatile as the corresponding industries in the U.S. A difference-in-difference method is extended to second moments to verify the statistical significance of this finding. We then develop a stochastic model of outsourcing with heterogeneous firms that can explain this volatility. The model employs two novel mechanisms: an extensive margin in outsourcing which responds endogenously to transmit shocks internationally, and translog preferences which modulate firm entry.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13144.
Date of creation: Jun 2007
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Other versions of this item:
- Paul Bergin & Robert Feenstra, 2006. "Outsourcing and Volatility," Working Papers, University of California, Davis, Department of Economics 628, University of California, Davis, Department of Economics.
- F1 - International Economics - - Trade
- F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-06-11 (All new papers)
- NEP-BEC-2007-06-11 (Business Economics)
- NEP-INT-2007-06-11 (International Trade)
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