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Offshoring and Sequential Production Chains: A General Equilibrium Analysis

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  • Philipp Harms
  • Jaewon Jung
  • Oliver Lorz

    (Université de Cergy-Pontoise, THEMA)

Abstract

We present a two-region general equilibrium model in which firms exploit international wage differences by offshoring parts of the production process. Firms have to take into account that production steps follow a strict sequence and that transporting intermediate goods across borders is costly. We analyze how a change in transport costs and various properties of the production process affect offshoring patterns as well as factor prices, accounting for the general equilibrium effects of firms’ decisions. Interestingly, the influence of declining transport costs on the range of tasks offshored per firm may differ from the effect on the number of firms engaged in offshoring.

Suggested Citation

  • Philipp Harms & Jaewon Jung & Oliver Lorz, 2017. "Offshoring and Sequential Production Chains: A General Equilibrium Analysis," THEMA Working Papers 2017-25, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    • Handle: RePEc:ema:worpap:2017-25
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    References listed on IDEAS

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    Cited by:

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    3. Jaewon Jung, 2022. "The Effects of China’s Participation in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP): A Quantitative Assessment," Sustainability, MDPI, vol. 15(1), pages 1-13, December.

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    More about this item

    Keywords

    Offshoring; sequential production; global production chain; task trade.;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • F10 - International Economics - - Trade - - - General
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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