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Financial Advantage, Outsourcing and FDI Under Wage Uncertainity

Author

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  • Choi, E. Kwan
  • Choi, Jai-Young

Abstract

This paper investigates outsourcing and foreign direct investment (FDI) decisions in North–South trade under conditions of wage uncertainty. The North has a financial advantage to raise capital, but the South has the advantage of low wages. If the expected outsourcing cost is lower than the in-house production cost, some outsourcing to a Southern firm is optimal. However, outsourcing to an FDI firm is superior to outsourcing to a Southern firm as well as in-house production. This finding is consistent with the rising foreign direct investment in China by Northern firms.

Suggested Citation

  • Choi, E. Kwan & Choi, Jai-Young, 2013. "Financial Advantage, Outsourcing and FDI Under Wage Uncertainity," Staff General Research Papers Archive 36077, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:36077
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    Cited by:

    1. Zhou, Yiming & Zeng, Dao-Zhi, 2015. "Offshoring, globalization, and welfare," The North American Journal of Economics and Finance, Elsevier, vol. 31(C), pages 75-93.
    2. Mandal, Biswajit & Prasad, Alaka Shree & Bhattacharjee, Prasun, 2017. "A Review of Literature on Time Zone Difference and Trade," MPRA Paper 78779, University Library of Munich, Germany.
    3. Hamid Beladi & Reza Oladi, 2014. "On Offshoring and Trade Deficit," Review of Development Economics, Wiley Blackwell, vol. 18(3), pages 517-523, August.

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    JEL classification:

    • F1 - International Economics - - Trade

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