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Trade liberalization and strategic outsourcing

  • Chen, Yongmin
  • Ishikawa, Jota
  • Yu, Zhihao

This paper develops a model of strategic outsourcing. With trade liberalization in the intermediate-product market, a domestic firm may choose to purchase a key intermediate good from a more efficient foreign producer, who also competes with the domestic firm for a final good. This has a strategic effect on competition. Unlike the outsourcing motivated by cost saving, the strategic outsourcing has a collusive effect that could raise the prices of both intermediate and final goods. Trade liberalization in the intermediate-good market has a very different effect compared with trade liberalization in the final-good market.

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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 63 (2004)
Issue (Month): 2 (July)
Pages: 419-436

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Handle: RePEc:eee:inecon:v:63:y:2004:i:2:p:419-436
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

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  1. Jota Ishikawa & Barbara J. Spencer, 1996. "Rent-Shifting Export Subsidies with an Imported Intermediate Product," NBER Working Papers 5458, National Bureau of Economic Research, Inc.
  2. Feenstra, Robert C & Hanson, Gordon H, 1996. "Globalization, Outsourcing, and Wage Inequality," American Economic Review, American Economic Association, vol. 86(2), pages 240-45, May.
  3. Horst Raff & Nicolas Schmitt, 2000. "Endogenous Vertical Restraints in International Trade," CESifo Working Paper Series 284, CESifo Group Munich.
  4. John McLaren, 2000. ""Globalization" and Vertical Structure," American Economic Review, American Economic Association, vol. 90(5), pages 1239-1254, December.
  5. Zhao, Laixun, 2001. "Unionization, vertical markets, and the outsourcing of multinationals," Journal of International Economics, Elsevier, vol. 55(1), pages 187-202, October.
  6. Spencer, Barbara J & Raubitschek, Ruth S, 1996. "High-Cost Domestic Joint Ventures and International Competition: Do Domestic Firms Gain?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(2), pages 315-40, May.
  7. Ishikawa, Jota & Lee, Ki-Dong, 1997. "Backfiring tariffs in vertically related markets," Journal of International Economics, Elsevier, vol. 42(3-4), pages 395-423, May.
  8. Yongmin Chen, 2000. "On Vertical Mergers and Their Competitive Effects," Econometric Society World Congress 2000 Contributed Papers 0383, Econometric Society.
  9. Gordon H. Hanson, 1994. "Localization Economies, Vertical Organization and Trade," NBER Working Papers 4744, National Bureau of Economic Research, Inc.
  10. Krishna, Kala & Morgan, John, 1998. "Implementing results-oriented trade policies: The case of the US-Japanese auto parts dispute," European Economic Review, Elsevier, vol. 42(8), pages 1443-1467, September.
  11. Barbara J. Spencer & Ronald W. Jones, 1989. "Trade and Protection in Vertically Related Markets," NBER Working Papers 3023, National Bureau of Economic Research, Inc.
  12. Hwang, Hae-Shin & Schulman, Craig T., 1993. "Strategic non-intervention and the choice of trade policy for international oligopoly," Journal of International Economics, Elsevier, vol. 34(1-2), pages 73-93, February.
  13. Matthew J. Slaughter, 1995. "Multinational Corporations, Outsourcing, and American Wage Divergence," NBER Working Papers 5253, National Bureau of Economic Research, Inc.
  14. Van Long, Ngo & Riezman, Raymond & Soubeyran, Antoine, 2005. "Fragmentation and services," The North American Journal of Economics and Finance, Elsevier, vol. 16(1), pages 137-152, March.
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