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Offshoring along the production chain

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  • Philipp Harms
  • Oliver Lorz
  • Dieter Urban

Abstract

In this paper, we analyze the offshoring decision of firms whose production process is characterized by a particular sequence of steps. International cost differences vary non‐monotonically along the production chain, and moving unfinished goods across borders incurs transport costs. We show that, in such a setting, firms may refrain from offshoring even if relocating individual steps would be advantageous in terms of offshoring costs, or they may offshore (almost) the entire production chain to save transport costs. Small variations in model parameters may thus have a substantial impact on offshoring activities. Dans ce mémoire, on analyse la décision de délocalisation des firmes dont le processus de production est caractérisé par une séquence particulière d’étapes. Les différences internationales de coûts varient de façon non‐monotone le long de la chaine de production, et déplacer des produits au stade intermédiaire de production à travers des frontières implique des coûts de transport. On montre que, dans un tel cadre, les entreprises peuvent choisir de ne pas délocaliser même si la relocalisation de certaines étapes individuelles de production pourrait être avantageuse en termes de coûts, ou elles peuvent délocaliser (presque) la chaine de production dans son entier pour réduire les coûts de transport. De faibles variations dans les paramètres du modèle peuvent avoir un impact substantiel sur les activités de délocalisation.

Suggested Citation

  • Philipp Harms & Oliver Lorz & Dieter Urban, 2012. "Offshoring along the production chain," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 45(1), pages 93-106, February.
  • Handle: RePEc:wly:canjec:v:45:y:2012:i:1:p:93-106
    DOI: 10.1111/j.1540-5982.2011.01688.x
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • F10 - International Economics - - Trade - - - General
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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