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Physical capital, knowledge capital, and the choice between FDI and outsourcing

Author

Listed:
  • Yongmin Chen
  • Ignatius J. Horstmann
  • James R. Markusen

Abstract

There exist two approaches in the literature concerning the multinational firm's mode choice for foreign production between an owned subsidiary and a licensing contract. One approach considers environments where the firm transfers primarily knowledge-based assets and assumes that knowledge is non-excludable. A more recent approach takes the property-right view of the firm and assumes that physical capital is fully excludable. This paper combines both forms of capital assets in a single model. There are subtleties, and added structure is needed to establish what ex ante seems a straightforward testable hypothesis: relatively physical-capital-intensive firms choose outsourcing while relatively knowledge-capital-intensive firms choose FDI.

Suggested Citation

  • Yongmin Chen & Ignatius J. Horstmann & James R. Markusen, 2012. "Physical capital, knowledge capital, and the choice between FDI and outsourcing," Canadian Journal of Economics, Canadian Economics Association, vol. 45(1), pages 1-15, February.
  • Handle: RePEc:cje:issued:v:45:y:2012:i:1:p:1-15
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    References listed on IDEAS

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    1. Ethier, Wilfred J. & Markusen, James R., 1996. "Multinational firms, technology diffusion and trade," Journal of International Economics, Elsevier, vol. 41(1-2), pages 1-28, August.
    2. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-1158, December.
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    Citations

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    Cited by:

    1. repec:krk:eberjl:v:5:y:2017:i:1:p:151-167 is not listed on IDEAS
    2. Karpaty, Patrik & Gustavsson Tingvall, Patrik, 2011. "Offshoring of Services and Corruption: Do Firms Escape Corrupt Countries?," Working Papers 2011:2, Örebro University, School of Business, revised 28 May 2012.
    3. KWON Hyeog Ug, 2012. "Offshoring of Japanese Small and Medium Enterprises (Japanese)," Discussion Papers (Japanese) 12004, Research Institute of Economy, Trade and Industry (RIETI).
    4. Heyman Fredrik & Tingvall Patrik Gustavsson, 2015. "The Dynamics of Offshoring and Institutions," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 15(4), pages 1975-2016, October.
    5. Pol Antràs, 2014. "Grossman–Hart (1986) Goes Global: Incomplete Contracts, Property Rights, and the International Organization of Production," Journal of Law, Economics, and Organization, Oxford University Press, pages 118-175.
    6. Antrà s, Pol & Yeaple, Stephen R., 2014. "Multinational Firms and the Structure of International Trade," Handbook of International Economics, Elsevier.
    7. JINJI Naoto & ZHANG Xingyuan & HARUNA Shoji, 2011. "Does Tobin's q Matter for Firms' Choices of Globalization Mode?," Discussion papers 11061, Research Institute of Economy, Trade and Industry (RIETI).
    8. Nowak, Verena, 2016. "Integration or Outsourcing: Combining Ex Ante Distortions and Ex Post Inefficiencies," Annual Conference 2016 (Augsburg): Demographic Change 145897, Verein für Socialpolitik / German Economic Association.
    9. Tingvall, Patrik, 2011. "Dynamic Effects of Corruption on Offshoring," Ratio Working Papers 182, The Ratio Institute.
    10. repec:bla:ecinqu:v:55:y:2017:i:2:p:778-793 is not listed on IDEAS

    More about this item

    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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