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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. 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.
  2. Wilhelm Kohler, 2004. "International outsourcing and factor prices with multistage production," Economic Journal, Royal Economic Society, vol. 114(494), pages C166-C185, 03.
  3. James Levinsohn, 1991. "Testing the Imports-as-Market-Discipline Hypothesis," NBER Working Papers 3657, National Bureau of Economic Research, Inc.
  4. Grossman, G.M. & Helpman, E., 2002. "Outsourcing in a Global Economy," Papers 218, Princeton, Woodrow Wilson School - Public and International Affairs.
  5. Piet Rietveld & Roger Vickerman, 2003. "Transport in regional science: The “death of distance” is premature," Papers in Regional Science, Springer, vol. 83(1), pages 229-248, October.
  6. Amiti, Mary, 1998. "Inter-industry trade in manufactures: Does country size matter?," Journal of International Economics, Elsevier, vol. 44(2), pages 231-255, April.
  7. 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.
  8. Esteban Rossi-Hansberg, 2005. "A Spatial Theory of Trade," American Economic Review, American Economic Association, vol. 95(5), pages 1464-1491, December.
  9. Rodney D. Ludema & Ian Wooton, 1998. "Economic Geography and the Fiscal Effects of Regional Integration," International Trade 9801001, EconWPA.
  10. repec:spo:wpecon:info:hdl:2441/10191 is not listed on IDEAS
  11. Kumar, Krishna B & Rajan, Raghuram G & Zingales, Luigi, 1999. "What Determines Firm Size?," CEPR Discussion Papers 2211, C.E.P.R. Discussion Papers.
  12. Head, Keith & Mayer, Thierry, 2003. "The Empirics of Agglomeration and Trade," CEPR Discussion Papers 3985, C.E.P.R. Discussion Papers.
  13. 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.
  14. Pol Antras & Elhanan Helpman, 2004. "Global Sourcing," Journal of Political Economy, University of Chicago Press, vol. 112(3), pages 552-580, June.
  15. Deardorff, A.V., 2000. "International Provision of Trade Services, Trade, and Fragmentation," Working Papers 463, Research Seminar in International Economics, University of Michigan.
  16. Barbara Dluhosch & Michael Burda, 2000. "Cost Competition, Fragmentation and Globalization," CESifo Working Paper Series 393, CESifo Group Munich.
  17. 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.
  18. 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.
  19. Robert C. Feenstra, . "Integration Of Trade And Disintegration Of Production In The Global Economy," Department of Economics 98-06, California Davis - Department of Economics.
  20. Shachmurove, Yochanan & Spiegel, Uriel, 1995. "On Nations' Size and Transportation Costs," Review of International Economics, Wiley Blackwell, vol. 3(2), pages 235-43, June.
  21. 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.
  22. Tharakan, Joe & Thisse, Jacques-François, 2001. "The Importance of Being Small. Or When Countries are Areas and not Points," CEPR Discussion Papers 2938, C.E.P.R. Discussion Papers.
  23. repec:hrv:faseco:4784029 is not listed on IDEAS
  24. Anderson, S., 1986. "Spatial competition and price leadership," CORE Discussion Papers 1986002, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  25. 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.
  26. 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.
  27. repec:kap:jeczfn:v:83:y:2003:i:1:p:229-248 is not listed on IDEAS
  28. Thomas Beissinger & Hartmut Egger, 2004. "Dynamic wage bargaining if benefits are tied to individual wages," Oxford Economic Papers, Oxford University Press, vol. 56(3), pages 437-460, July.
  29. 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.
  30. 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.
  31. Layard, R. & Nickell, S., 1988. "Is Unemployment Lower If Unions Bargain Over Employment?," Papers 308, London School of Economics - Centre for Labour Economics.
  32. 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.
  33. 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.
  34. Ronald W. Jones, 2000. "Globalization and the Theory of Input Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 026210086x, June.
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