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To Outsource or Not To Outsource in North-South Trade

Listed author(s):
  • Choi, E. Kwan
  • Choi, Jai-Young

This paper investigates outsourcing and foreign direct investment (FDI)decisions based on factor price differentials in North-South trade when the productionis fragmented into two independent processes. It is shown that (a) when the Southern firm does not have the Northern firm-specific technology for a fragmentable process and capital is imperfectly (perfectly) mobile between countries, the Northern firm produces the final product by outsourcing the other fragmentable process from the South via FDI (either FDI or outsourcing to a Southern outsourcee); (b) when the Southern firm acquires the Northern firm-specific technology for the fragmentable process and capital is imperfectly (perfectly) mobile, only the Northern firm produces the final product by outsourcing the other process via FDI and drives out the Southern firm from the world market (both the Northern and Southern firms produce the final product); (c) in all the cases, outsourcing is unidirectional from the North to the South.

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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers Archive with number 32564.

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Date of creation: 09 Apr 2010
Publication status: Published in Frontiers in Finance and Economics, April 2010, vol. 7, pp. 60-81
Handle: RePEc:isu:genres:32564
Contact details of provider: Postal:
Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070

Phone: +1 515.294.6741
Fax: +1 515.294.0221
Web page: http://www.econ.iastate.edu
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  1. Wilhelm Kohler, 2004. "International outsourcing and factor prices with multistage production," Economic Journal, Royal Economic Society, vol. 114(494), pages 166-185, March.
  2. Elhanan Helpman, 2006. "Trade, FDI, and the Organization of Firms," Journal of Economic Literature, American Economic Association, vol. 44(3), pages 589-630, September.
  3. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March.
  4. Chi-Chur Chao & Eden S. H. Yu, 2014. "Content Protection, Urban Unemployment, and Welfare," World Scientific Book Chapters,in: TRADE-RELATED INVESTMENT MEASURES Theory and Applications, chapter 8, pages 127-140 World Scientific Publishing Co. Pte. Ltd..
  5. Long, Ngo Van, 2005. "Outsourcing and technology spillovers," International Review of Economics & Finance, Elsevier, vol. 14(3), pages 297-304.
  6. Gorg, Holger & Hanley, Aoife, 2005. "Labour demand effects of international outsourcing: Evidence from plant-level data," International Review of Economics & Finance, Elsevier, vol. 14(3), pages 365-376.
  7. Baldwin, Richard E. & Ottaviano, Gianmarco I. P., 2001. "Multiproduct multinationals and reciprocal FDI dumping," Journal of International Economics, Elsevier, vol. 54(2), pages 429-448, August.
  8. 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.
  9. Jagdish Bhagwati & Arvind Panagariya, 2004. "The Muddles over Outsourcing," Journal of Economic Perspectives, American Economic Association, vol. 18(4), pages 93-114, Fall.
  10. Choi, E. Kwan, 2007. "To outsource or not to outsource in an integrated world," International Review of Economics & Finance, Elsevier, vol. 16(4), pages 521-527.
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