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A Simple Model of Outsourcing with Cournot Competition

  • Michael Hübler

The paper analyses a partial equilibrium outsourcing model with Cournot competition in intermediate good production. Final production is located in western Europe, whereas the intermediate good can be manufactured by a western (outsourcing) or eastern European supplier (offshore outsourcing). Interregional production (factor) allocation depending on factor prices and productivity levels is investigated analytically and graphically. The main results are: Higher production costs in one region reduce intermediate good production in both regions leading to a substitution effect between high- and low-skilled labour intensive inputs rather than between eastern and western low-skilled labour intensive inputs. The sensitivity of outsourcing activities to production cost changes is highest when the interregional cost differential is smallest.

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File URL: https://www.ifw-members.ifw-kiel.de/publications/costs-of-climate-change-the-effects-of-rising-temperatures-on-health-and-productivity-1/Costs%20of%20Climate%20Change%2009-2007.pdf
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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1320.

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Length: 28 pages
Date of creation: Mar 2007
Date of revision:
Handle: RePEc:kie:kieliw:1320
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  1. Feenstra, R.C. & Hanson, G.H., 1995. "Foreign Investment, Outsourcing and Relative Wages," Papers 95-14, California Davis - Institute of Governmental Affairs.
  2. Marin, Dalia & Lorentowicz, Andzelika & Raubold, Alexander, 2002. "Ownership, Capital or Outsourcing: What Drives German Investment to Eastern Europe?," Discussion Papers in Economics 72, University of Munich, Department of Economics.
  3. Marin, Dalia, 2004. "A Nation of Poets and Thinkers - Less so with Eastern Enlargement? Austria and Germany," CEPR Discussion Papers 4358, C.E.P.R. Discussion Papers.
  4. Bandyopadhyay, Subhayu & Wall, Howard J., 2005. "Oligopoly and Outsourcing," IZA Discussion Papers 1892, Institute for the Study of Labor (IZA).
  5. Jagdish Bhagwati & Arvind Panagariya & T. N. Srinivasan, 2004. "The Muddles over Outsourcing," International Trade 0408004, EconWPA.
  6. Bartel, Ann P & Lach, Saul & Sicherman, Nachum, 2005. "Outsourcing and Technological Change," CEPR Discussion Papers 5082, C.E.P.R. Discussion Papers.
  7. James R. Markusen & Keith E. Maskus, 1999. "Multinational Firms: Reconciling Theory and Evidence," NBER Working Papers 7163, National Bureau of Economic Research, Inc.
  8. Richard E. Baldwin & Frédéric Robert-Nicoud, 2007. "Offshoring: General Equilibrium Effects on Wages, Production and Trade," CEP Discussion Papers dp0794, Centre for Economic Performance, LSE.
  9. Grossman, Gene & Helpman, Elhanan, 2002. "Outsourcing in a Global Economy," CEPR Discussion Papers 3165, C.E.P.R. Discussion Papers.
  10. Sascha O. Becker & Karolina Ekholm & Robert Jaeckle & Marc-Andreas Muendler, 2005. "Location Choice and Employment Decisions: A Comparison of German and Swedish Multinationals," CESifo Working Paper Series 1374, CESifo Group Munich.
  11. Hans-Werner Sinn, 2005. "Basar-Ökonomie Deutschland - Exportweltmeister oder Schusslicht?," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 58(06), pages 03-42, 03.
  12. Marin, Dalia, 2005. "A New International Division of Labor in Europe: Outsourcing and Offshoring to Eastern Europe," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 80, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  13. Mine Zeynep Senses, 2006. "The Effects of Outsourcing on the Elasticity of Labor Demand," Working Papers 06-07, Center for Economic Studies, U.S. Census Bureau.
  14. Konings, Jozef & Murphy, Alan, 2001. "Do Multinational Enterprises Substitute Parent Jobs for Foreign Ones? Evidence from European Firm Level Panel Data," CEPR Discussion Papers 2972, C.E.P.R. Discussion Papers.
  15. Subhayu Bandyopadhyay & Howard J. Wall, 2010. "Immigration and Outsourcing: A General-Equilibrium Analysis," Review of Development Economics, Wiley Blackwell, vol. 14(s1), pages 433-446, 08.
  16. Hartmut Egger & Peter Egger, 2004. "On the Relationship between International Outsourcing and Price--Cost Margins in European Industries," Review of Industrial Organization, Springer, vol. 25(1), pages 45-69, 08.
  17. Gustav A. Horn & Stefanie Behncke, 2004. "Deutschland ist keine Basarökonomie," DIW Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 71(40), pages 583-589.
  18. James Markusen, 2005. "Modeling the Offshoring of White-Collar Services: From Comparative Advantage to the New Theories of Trade and FDI," NBER Working Papers 11827, National Bureau of Economic Research, Inc.
  19. Egger, Hartmut & Egger, Peter, 2007. "Outsourcing and trade in a spatial world," Journal of Urban Economics, Elsevier, vol. 62(3), pages 441-470, November.
  20. Gene M. Grossman & Elhanan Helpman, 2003. "Outsourcing Versus FDI in Industry Equilibrium," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 317-327, 04/05.
  21. Devashish Mitra & Priya Ranjan, 2005. "Y2K and Offshoring: The Role of External Economies and Firm Heterogeneity," Working Papers 050605, University of California-Irvine, Department of Economics.
  22. Jörn Kleinert, 2003. "Growing Trade in Intermediate Goods: Outsourcing, Global Sourcing, or Increasing Importance of MNE Networks?," Review of International Economics, Wiley Blackwell, vol. 11(3), pages 464-482, 08.
  23. Magnus Blomstrom & Linda S. Goldberg, 2001. "Topics in Empirical International Economics: A Festschrift in Honor of Robert E. Lipsey," NBER Books, National Bureau of Economic Research, Inc, number blom01-1, August.
  24. Gene M. Grossman & Elhanan Helpman, 2002. "Integration Versus Outsourcing In Industry Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 85-120, February.
  25. Wilhelm Kohler, 2004. "International outsourcing and factor prices with multistage production," Economic Journal, Royal Economic Society, vol. 114(494), pages C166-C185, 03.
  26. Gene M. Grossman & Esteban Rossi-Hansberg, 2008. "Trading Tasks: A Simple Theory of Offshoring," American Economic Review, American Economic Association, vol. 98(5), pages 1978-97, December.
  27. Jacob Funk Kirkegaard, 2005. "Outsourcing and Offshoring: Pushing the European Model Over the Hill, Rather Than Off the Cliff!," Working Paper Series WP05-1, Peterson Institute for International Economics.
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