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To Outsource or Not To Outsource in North-South Trade

  • E. Kwan Choi, Jai-Young Choi

    ()

    (Dresden University of Technology, Germany)

This paper investigates outsourcing and foreign direct investment (FDI) decisions based on factor price differentials in North-South trade when the production is fragmented into two independent processes. It is shown that (a) when the Southern firm does not have the Northern firm-specific technology for a fragmentable process and capital is imperfectly (perfectly) mobile between countries, the Northern firm produces the final product by outsourcing the other fragmentable process from the South via FDI (either FDI or outsourcing to a Southern outsourcee); (b) when the Southern firm acquires the Northern firm-specific technology for the fragmentable process and capital is imperfectly (perfectly) mobile, only the Northern firm produces the final product by outsourcing the other process via FDI and drives out the Southern firm from the world market (both the Northern and Southern firms produce the final product); (c) in all the cases, outsourcing is unidirectional from the North to the South.

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File URL: http://www.ffe.esc-lille.com/papers/Vol7-1ms236Choi.pdf
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Article provided by SKEMA Business School in its journal Frontiers in Finance and Economics.

Volume (Year): 7 (2010)
Issue (Month): 1 (April)
Pages: 60-81

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Handle: RePEc:ffe:journl:v:7:y:2010:i:1:p:60-81
Contact details of provider: Web page: http://www.ffe.esc-lille.com

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  1. Choi, E. Kwan, 2007. "To Outsource or Not to Outsource in an Integrated World," Staff General Research Papers 12535, Iowa State University, Department of Economics.
  2. Baldwin, Richard E. & Ottaviano, Gianmarco I. P., 2001. "Multiproduct multinationals and reciprocal FDI dumping," Journal of International Economics, Elsevier, vol. 54(2), pages 429-448, August.
  3. Gorg, Holger & Hanley, Aoife, 2005. "Labour demand effects of international outsourcing: Evidence from plant-level data," International Review of Economics & Finance, Elsevier, vol. 14(3), pages 365-376.
  4. Yeaple, Stephen & Helpman, Elhanan & Melitz, Marc, 2004. "Export versus FDI with Heterogeneous Firms," Scholarly Articles 3229098, Harvard University Department of Economics.
  5. Jagdish Bhagwati & Arvind Panagariya, 2004. "The Muddles over Outsourcing," Journal of Economic Perspectives, American Economic Association, vol. 18(4), pages 93-114, Fall.
  6. Wilhelm Kohler, 2004. "International outsourcing and factor prices with multistage production," Economic Journal, Royal Economic Society, vol. 114(494), pages C166-C185, 03.
  7. Elhanan Helpman, 2006. "Trade, FDI, and the Organization of Firms," Harvard Institute of Economic Research Working Papers 2118, Harvard - Institute of Economic Research.
  8. Hartmut Egger & Peter Egger, 2000. "Outsourcing and skill-specific employment in a small economy: Austria and the fall of the Iron Curtain," Economics working papers 2000-24, Department of Economics, Johannes Kepler University Linz, Austria.
  9. Long, Ngo Van, 2005. "Outsourcing and technology spillovers," International Review of Economics & Finance, Elsevier, vol. 14(3), pages 297-304.
  10. Chi-Chur Chao & Eden S. H. Yu, 2014. "Content Protection, Urban Unemployment, and Welfare," World Scientific Book Chapters, in: TRADE-RELATED INVESTMENT MEASURES Theory and Applications, chapter 8, pages 127-140 World Scientific Publishing Co. Pte. Ltd..
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