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Outsourcing and Trade in a Spatial World

  • Hartmut Egger
  • Peter Egger

This paper provides an analysis of outsourcing and trade in a spatial model à la Hotelling. In this setting, we discuss the trade-off between transport cost related disadvantages and outsourcing-induced production cost advantages of a large economy. The model gives a rich picture of possible trade and welfare effects of a movement towards free trade. For example, if there is international outsourcing, both countries may gain from free trade, independently of who exports the consumption good. However, if specialized input production only occurs in the large economy and the small country exports the final good, overall world welfare may even decline, when moving towards free trade.

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File URL: http://degit.sam.sdu.dk/papers/degit_09/C009_025.pdf
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Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c009_025.

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Length: 49 pages
Date of creation: Jun 2004
Date of revision:
Handle: RePEc:deg:conpap:c009_025
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  1. Rodney D. Ludema & Ian Wooton, 1998. "Economic Geography and the Fiscal Effects of Regional Integration," Working Papers 9809, Business School - Economics, University of Glasgow.
  2. Robert Feenstra, 2003. "Integration Of Trade And Disintegration Of Production In The Global Economy," Working Papers 986, University of California, Davis, Department of Economics.
  3. Kei-Mu Yi, 2003. "Can Vertical Specialization Explain the Growth of World Trade?," Journal of Political Economy, University of Chicago Press, vol. 111(1), pages 52-102, February.
  4. 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.
  5. Cabrales, Antonio & Motta, Massimo, 2001. "Country asymmetries, endogenous product choice and the timing of trade liberalization," European Economic Review, Elsevier, vol. 45(1), pages 87-107, January.
  6. 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.
  7. Shachmurove, Yochanan & Spiegel, Uriel, 1995. "On Nations' Size and Transportation Costs," Review of International Economics, Wiley Blackwell, vol. 3(2), pages 235-43, June.
  8. Robert Feenstra & Gordon Hanson, 2001. "Global Production Sharing and Rising Inequality: A Survey of Trade and Wages," NBER Working Papers 8372, National Bureau of Economic Research, Inc.
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  10. Anderson, Simon, 1987. "Spatial competition and price leadership," International Journal of Industrial Organization, Elsevier, vol. 5(4), pages 369-398.
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  12. Kumar, Krishna B & Rajan, Raghuram G & Zingales, Luigi, 1999. "What Determines Firm Size?," CEPR Discussion Papers 2211, C.E.P.R. Discussion Papers.
  13. Deardorff, A.V., 2000. "International Provision of Trade Services, Trade, and Fragmentation," Working Papers 463, Research Seminar in International Economics, University of Michigan.
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  15. Ronald W. Jones, 2000. "Globalization and the Theory of Input Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 026210086x, June.
  16. Hamid Hamoudi & María J. Moral, 2005. "Equilibrium existence in the linear model: Concave versus convex transportation costs," Papers in Regional Science, Wiley Blackwell, vol. 84(2), pages 201-219, 06.
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  19. Beissinger, Thomas & Egger, Hartmut, 2001. "Dynamic Wage Bargaining if Benefits are Tied to Individual Wages," IZA Discussion Papers 389, Institute for the Study of Labor (IZA).
  20. Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001. "The nature and growth of vertical specialization in world trade," Journal of International Economics, Elsevier, vol. 54(1), pages 75-96, June.
  21. repec:kap:jeczfn:v:83:y:2003:i:1:p:229-248 is not listed on IDEAS
  22. Gene M. Grossman & Elhanan Helpman, 2002. "Integration Versus Outsourcing In Industry Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 85-120, February.
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  24. Behrens, Kristian & Gaigné, Carl & Ottaviano, Gianmarco & Thisse, Jacques-François, 2003. "Inter-regional and International Trade: Seventy Years After Ohlin," CEPR Discussion Papers 4065, C.E.P.R. Discussion Papers.
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  26. Tharakan, Joe & Thisse, Jacques-Francois, 2002. "The importance of being small. Or when countries are areas and not points," Regional Science and Urban Economics, Elsevier, vol. 32(3), pages 381-408, May.
  27. Markusen, James R., 1981. "Trade and the gains from trade with imperfect competition," Journal of International Economics, Elsevier, vol. 11(4), pages 531-551, November.
  28. Amiti, Mary, 1998. "Inter-industry trade in manufactures: Does country size matter?," Journal of International Economics, Elsevier, vol. 44(2), pages 231-255, April.
  29. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
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  31. James Levinsohn, 1991. "Testing the Imports-as-Market-Discipline Hypothesis," NBER Working Papers 3657, National Bureau of Economic Research, Inc.
  32. Osborne, Martin J & Pitchik, Carolyn, 1986. "The Nature of Equilibrium in a Location Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 223-37, February.
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  34. Wilhelm Kohler, 2004. "International outsourcing and factor prices with multistage production," Economic Journal, Royal Economic Society, vol. 114(494), pages C166-C185, 03.
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