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International Outsourcing under Monopolistic Competition: Winners and Losers

Author

Listed:
  • Ngo Van Long

  • Viet Do

Abstract

We show that, even with flexible domestic wages, international outsourcing may worsen the welfare of the home country and reduce the profits of all firms. If wages are rigid, outsourcing is welfare-improving if and only if the sum of the "trade creation" effect and the "exploitation effect" exceeds the "trade diversion" effect. A wage subsidy may improve welfare. We also extend the model to a two-period framework. Delaying outsourcing can be gainful because the fixed cost of outsourcing may fall over time. A social planner would choose a different speed of outsourcing than that achieved under laissez-faire.

Suggested Citation

  • Ngo Van Long & Viet Do, 2007. "International Outsourcing under Monopolistic Competition: Winners and Losers," Departmental Working Papers 2007-06, McGill University, Department of Economics.
    • Handle: RePEc:mcl:mclwop:2007-06
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    File URL: https://home.mcgill.ca/files/economics/Internationaloutsourcingunder.pdf
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    Cited by:

    1. Toru Kikuchi & Sugata Marjit & Biswajit Mandal, 2013. "Trade with Time Zone Differences: Factor Market Implications," Review of Development Economics, Wiley Blackwell, vol. 17(4), pages 699-711, November.
    2. Sugata Marjit & Toru Kikuchi, 2011. "Time Zones and FDI with Heterogenous Firms," Discussion Papers Series 425, School of Economics, University of Queensland, Australia.
    3. Kikuchi, Toru & Long, Ngo Van, 2010. "A simple model of service offshoring with time zone differences," The North American Journal of Economics and Finance, Elsevier, vol. 21(3), pages 217-227, December.
    4. Kikuchi, Toru & Marjit, Sugata, 2011. "Growth with time zone differences," Economic Modelling, Elsevier, vol. 28(1), pages 637-640.
    5. repec:dau:papers:123456789/6913 is not listed on IDEAS

    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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