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Outsourcing and International Production of a Multinational: A Theoretical Model and Empirical Evidence from Toyota, Thailand

  • Witada Anukoonwattaka
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    A stylised partial equilibrium model of an MNC is developed. The model incorporates key aspects of outsourcing in a world of falling trade costs. The multinational, with firm-specific capital operates in two countries that differ in factor prices; it produces final goods with firm specific capital but can source multiple intermediate goods internally from each subsidiary (produced with firm-specific capital and labour), or outsource them from domestic or foreign suppliers. There is a potential trade off between scale of final good production and scope of in-house component production. Trade liberalization can affect both country and organization choices of the firm’s component sourcing and final-good production. We also use a previously unused data set on component trade of Toyota in Southeast Asia to conduct an empirical investigation informed by the model insights.

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    File URL: http://degit.sam.sdu.dk/papers/degit_12/C012_045.pdf
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    Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c012_045.

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    Length: 35 pages JEL Classification: F14, F15, F23, L22, L62
    Date of creation: Jun 2007
    Date of revision:
    Handle: RePEc:deg:conpap:c012_045
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    1. Ronald W. Jones, 2000. "Globalization and the Theory of Input Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 026210086x, June.
    2. James R. Markusen, 1998. "Multinational Firms, Location and Trade," The World Economy, Wiley Blackwell, vol. 21(6), pages 733-756, 08.
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    4. John McLaren, 2000. ""Globalization" and Vertical Structure," American Economic Review, American Economic Association, vol. 90(5), pages 1239-1254, December.
    5. David Hummels & Dana Rapoport & Kei-Mu Yi, 1998. "Vertical specialization and the changing nature of world trade," Economic Policy Review, Federal Reserve Bank of New York, issue Jun, pages 79-99.
    6. Feenstra, R.C. & Hanson, G.H., 1995. "Foreign Investment, Outsourcing and Relative Wages," Department of Economics 95-14, California Davis - Department of Economics.
    7. repec:hrv:faseco:4784029 is not listed on IDEAS
    8. Robert C. Feenstra & Gordon H. Hanson & Deborah L. Swenson, 2000. "Offshore Assembly from the United States: Production Characteristics of the 9802 Program," NBER Chapters, in: The Impact of International Trade on Wages, pages 85-125 National Bureau of Economic Research, Inc.
    9. Gene M. Grossman & Esteban Rossi-Hansberg, 2008. "Trading Tasks: A Simple Theory of Offshoring," American Economic Review, American Economic Association, vol. 98(5), pages 1978-97, December.
    10. Jörn Kleinert, 2000. "Growing Trade in Intermediate Goods: Outsourcing, Global Sourcing or Increasing Importance of MNE Networks?," Kiel Working Papers 1006, Kiel Institute for the World Economy.
    11. Barbara J. Spencer, 2005. "International Outsourcing and Incomplete Contracts," NBER Working Papers 11418, National Bureau of Economic Research, Inc.
    12. Pol Antras & Elhanan Helpman, 2004. "Global Sourcing," Journal of Political Economy, University of Chicago Press, vol. 112(3), pages 552-580, June.
    13. James Markusen, 2005. "Modeling the Offshoring of White-Collar Services: From Comparative Advantage to the New Theories of Trade and FDI," NBER Working Papers 11827, National Bureau of Economic Research, Inc.
    14. Grossman, Gene & Helpman, Elhanan, 2002. "Outsourcing Versus FDI in Industry Equilibrium," CEPR Discussion Papers 3647, C.E.P.R. Discussion Papers.
    15. Robert C. Feenstra & Gordon H. Hanson, 1996. "Globalization, Outsourcing, and Wage Inequality," NBER Working Papers 5424, National Bureau of Economic Research, Inc.
    16. 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.
    17. Deborah L. Swenson, 2004. "Overseas Assembly and Country Sourcing Choices," NBER Working Papers 10697, National Bureau of Economic Research, Inc.
    18. Robert C. Feenstra & Gordon H. Hanson, 2004. "Ownership and Control in Outsourcing to China: Estimating the Property-Rights Theory of the Firm," NBER Working Papers 10198, National Bureau of Economic Research, Inc.
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