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Firm Heterogeneity, Contract Enforcement, and the Industry Dynamics of Offshoring

Author

Listed:
  • Alireza Naghavi

    (University of Bologna)

  • Gianmarco I. P. Ottaviano

    (Bocconi University)

Abstract

We develop an endogenous growth model with R&D spillovers to study the long run consequences of offshoring with firm heterogeneity and incomplete contracts. In so doing, we model offshoring as the geographical fragmentation of a firm’s production chain between a home upstream division and a foreign downstream one. While there is always a positive correlation between upstream bargaining weight and offshoring activities, there is an inverted U-shaped relationship between these and growth. Whether offshoring with incomplete contracts also increases consumption depends on firm heterogeneity. As for welfare, whereas with complete contracts an R&D subsidy is enough to solve the inefficiency due to R&D spillovers, with incomplete contracts a production subsidy is also needed.

Suggested Citation

  • Alireza Naghavi & Gianmarco I. P. Ottaviano, 2009. "Firm Heterogeneity, Contract Enforcement, and the Industry Dynamics of Offshoring," Development Working Papers 282, Centro Studi Luca d'Agliano, University of Milano.
    • Handle: RePEc:csl:devewp:282
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    Cited by:

    1. Colin Davis & Ken‐ichi Hashimoto, 2023. "Innovation offshoring and reshoring with fully endogenous growth," Southern Economic Journal, John Wiley & Sons, vol. 90(1), pages 90-120, July.
    2. Van Assche, Ari & Schwartz, Galina A., 2010. "Input specificity and global sourcing," Journal of the Japanese and International Economies, Elsevier, vol. 24(1), pages 69-85, March.
    3. Colin Davis & Ken-ichi Hashimoto, 2016. "Innovation and Manufacturing Offshoring with Fully Endogenous Productivity Growth," Discussion Papers 1636, Graduate School of Economics, Kobe University.
    4. Colin Davis & Ken-ichi Hashimoto, 2019. "Innovation Offshoring with Fully Endogenous Growth," ISER Discussion Paper 1055, Institute of Social and Economic Research, The University of Osaka.
    5. Andreas Hoefele, 2013. "The Skill Content of Offshoring and Growth," Discussion Paper Series 2013_12, Department of Economics, Loughborough University, revised Oct 2013.

    More about this item

    Keywords

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    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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