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Competition and Offshoring

Author

Listed:
  • Jose Antonio Rodriguez-Lopez

    (Department of Economics, University of California-Irvine)

Abstract

I present a model of offshoring decisions with heterogeneous firms, random adjustment costs, and endogenous markups. The model shows an inverted-U relationship between firm-level productivity and the probability of offshoring; hence, the most productive firms are less likely to offshore than some lower-productivity firms. A tougher competitive environment has two opposing effects on firm-level offshoring likelihood: a Schumpeterian effect--accounting for the negative effect of competition on offshoring profits--and an escape-competition effect--accounting for the effect of competition on the incremental profits from offshoring. A productivity level separates non-offshoring firms according to the dominant effect, with the Schumpeterian effect dominating for the least productive firms.

Suggested Citation

  • Jose Antonio Rodriguez-Lopez, 2012. "Competition and Offshoring," Working Papers 111213, University of California-Irvine, Department of Economics.
    • Handle: RePEc:irv:wpaper:111213
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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