International Trade and Local Outsourcing
AbstractThis paper establishes a crucial link between international trade and local organization of production. By using the standard Heckscher-Ohlin-Samuelson model we show that international trade promotes fragmentation, entrepreneurship and outsourcing due to the capital cost effect and the scale effect. We also unveil one source of productivity and formalize a link between trade and productivity. We illustrate that both the scale effect and the flourish of entrepreneurial talent due to capital cost effect contribute to the improvement of productivity. For the import competing sector the productivity effect and the scale effect move against each other. Accordingly, the impacts of international trade on local outsourcing in export sector are different from that in import competing sector. Further, we find that the above findings still hold in a world where the intermediate goods are tradable. In addition, we demonstrate that a higher trading cost involved in trading the intermediate goods encourages fragmentation and local outsourcing.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 19156.
Date of creation: Nov 2009
Date of revision:
Trade; Outsourcing; Entrepreneurship; Productivity;
Find related papers by JEL classification:
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
- F11 - International Economics - - Trade - - - Neoclassical Models of Trade
- J54 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Producer Cooperatives; Labor Managed Firms
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