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Trade Liberalization, Outsourcing, and Firm Productivity

  • Ralph Ossa
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    Empirical evidence suggests that trade liberalization increases firm productivity. This paper offers a novel explanation for this finding. I develop a simple general equilibrium model of trade in which trade liberalization leads to outsourcing as firms focus on their core competencies in response to tougher competition. Since firms are the better at performing tasks the closer they are to their core competencies, this outsourcing increases firm productivity. Moreover, I also investigate the links between various technological parameters and outsourcing. In particular, I analyze how technological progress, changes in fixed costs, and changes in internal governance costs affect firms' integration decisions.

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    Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0814.

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    Date of creation: Jul 2007
    Date of revision:
    Handle: RePEc:cep:cepdps:dp0814
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    1. repec:rus:hseeco:122439 is not listed on IDEAS
    2. Andrew B. Bernard & Stephen J. Redding & Peter K. Schott, 2006. "Multi-Product Firms and Trade Liberalization," NBER Working Papers 12782, National Bureau of Economic Research, Inc.
    3. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jenson & Samuel Kortum, 2000. "Plants and Productivity in International Trade," NBER Working Papers 7688, National Bureau of Economic Research, Inc.
    4. Ottaviano, Gianmarco & Melitz, Marc, 2008. "Market Size, Trade, and Productivity," Scholarly Articles 3229096, Harvard University Department of Economics.
    5. Petia Topalova, 2004. "Trade Liberalization and Firm Productivity: The Case of India," IMF Working Papers 04/28, International Monetary Fund.
    6. Daniel Trefler, 2004. "The Long and Short of the Canada-U. S. Free Trade Agreement," American Economic Review, American Economic Association, vol. 94(4), pages 870-895, September.
    7. Volker Nocke & Stephen Yeaple, 2006. "Globalization and Endogenous Firm Scope," NBER Working Papers 12322, National Bureau of Economic Research, Inc.
    8. Nina Pavcnik, 2000. "Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants," NBER Working Papers 7852, National Bureau of Economic Research, Inc.
    9. Sofronis Clerides & Saul Lach & James Tybout, 1996. "Is "Learning-by-Exporting" Important? Micro-Dynamic Evidence from Colombia, Mexico and Morocco," NBER Working Papers 5715, National Bureau of Economic Research, Inc.
    10. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers.
    11. repec:tpr:qjecon:v:113:y:1998:i:3:p:903-947 is not listed on IDEAS
    12. Carsten Eckel & J. Peter Neary, 2006. "Multi-product firms and flexible manufacturing in the global economy," Working Papers 200608, School of Economics, University College Dublin.
    13. John McLaren, 2000. ""Globalization" and Vertical Structure," American Economic Review, American Economic Association, vol. 90(5), pages 1239-1254, December.
    14. repec:oup:qjecon:v:113:y:1998:i:3:p:903-947 is not listed on IDEAS
    15. Philippe Aghion & Robin Burgess & Stephen Redding & Fabrizio Zilibotti, 2005. "Entry Liberalization and Inequality in Industrial Performance," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 291-302, 04/05.
    16. Choi, E. Kwan & Harrigan, James, 2003. "Handbook of International Trade," Staff General Research Papers 11375, Iowa State University, Department of Economics.
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