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Competition and the location of overseas assembly

  • Deborah L. Swenson

How does international competition affect overseas outsourcing? To address this question, this paper studies production decisions in the U.S.'s overseas assembly program (OAP). In this setting, a number of regularities emerge. First, prior participation is highly correlated with current participation, which suggests that sunk costs influence outsourcing choices. Second, increases in own-country costs and declines in competitor-country costs reduce participation probabilities. In addition, these persistence and cost effects are much larger for outsourcing in developing countries. Finally, outsourcing responses appear to reflect differences in 'market thickness,' as cost sensitivity generally rises with competitor presence.

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Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 40 (2007)
Issue (Month): 1 (February)
Pages: 155-175

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Handle: RePEc:cje:issued:v:40:y:2007:i:1:p:155-175
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  1. Swenson, Deborah L., 2005. "Overseas assembly and country sourcing choices," Journal of International Economics, Elsevier, vol. 66(1), pages 107-130, May.
  2. Robert C. Feenstra & Gordon H. Hanson & Deborah L. Swenson, 2000. "Offshore Assembly from the United States: Production Characteristics of the 9802 Program," NBER Chapters, in: The Impact of International Trade on Wages, pages 85-125 National Bureau of Economic Research, Inc.
  3. Andrew B. Bernard & J. Bradford Jensen & Peter K. Schott, 2003. "Survival of the Best Fit: Exposure to Low-Wage Countries and the (Uneven) Growth of U.S. Manufacturing Plants," CEP Discussion Papers dp0584, Centre for Economic Performance, LSE.
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  8. Kei-Mu Yi, 2003. "Can Vertical Specialization Explain the Growth of World Trade?," Journal of Political Economy, University of Chicago Press, vol. 111(1), pages 52-102, February.
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  13. Mendez, JoseA., 1993. "The welfare effects of repealing the U.S. Offshore Assembly Provision," Journal of International Economics, Elsevier, vol. 34(1-2), pages 1-22, February.
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  18. Tibor Besedes, . "A Search Cost Perspective on Duration of Trade," Departmental Working Papers 2006-12, Department of Economics, Louisiana State University.
  19. Richard Baldwin, 1988. "Hysteresis In Import Prices: The Beachhead Effect," NBER Working Papers 2545, National Bureau of Economic Research, Inc.
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  21. Ng, Francis & Yeats, Alexander, 1999. "Production sharing in East Asia : who does what for whom, and why?," Policy Research Working Paper Series 2197, The World Bank.
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