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To Outsource or Not to Outsource Inn North-South Trade

  • Choi, E. Kwan
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    This paper investigates outsourcing and foreign direct investment (FDI) decisions based on factor price differentials in North-South trade when the production activity is 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 through 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) however, in all the cases, outsourcing is unidirectional from the North to the South.

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    File URL: http://www.econ.iastate.edu/sites/default/files/publications/papers/p14997-2010-04-01.pdf
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    Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 34997.

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    Date of creation: 01 Apr 2010
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    Publication status: Published in Frontiers in Finance and Economics, April 2010, vol. 7 no. 1, pp. 60-81
    Handle: RePEc:isu:genres:34997
    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. 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.
    2. Elhanan Helpman, 2006. "Trade, FDI, and the Organization of Firms," Harvard Institute of Economic Research Working Papers 2118, Harvard - Institute of Economic Research.
    3. Wilhelm Kohler, 2004. "International outsourcing and factor prices with multistage production," Economic Journal, Royal Economic Society, vol. 114(494), pages C166-C185, 03.
    4. 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.
    5. Jagdish Bhagwati & Arvind Panagariya & T. N. Srinivasan, 2004. "The Muddles over Outsourcing," International Trade 0408004, EconWPA.
    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. Richard E. Baldwin & Gianmarco I. P. Ottaviano, 1998. "Multiproduct Multinationals and Reciprocal FDI Dumping," NBER Working Papers 6483, National Bureau of Economic Research, Inc.
    8. Chi-Chur Chao & Eden S. H. Yu, 1993. "Content Protection, Urban Unemployment and Welfare," Canadian Journal of Economics, Canadian Economics Association, vol. 26(2), pages 481-92, May.
    9. 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.
    10. Long, Ngo Van, 2005. "Outsourcing and technology spillovers," International Review of Economics & Finance, Elsevier, vol. 14(3), pages 297-304.
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