Outsourcing in a Global Economy
Gene M. Grossman
Princeton University - Woodrow Wilson School of Public and International Affairs; Princeton University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)
Harvard University - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)
Harvard Institute Research Working Paper No. 1966
We study the determinants of the location of sub-contracted activity in a general equilibrium model of outsourcing and trade. We model outsourcing as an activity that requires search for a partner and relationship-specific investments that are governed by incomplete contracts. The extent of international outsourcing depends inter alia on the thickness of the domestic and foreign market for input suppliers, the relative cost of searching in each market, the relative cost of customizing inputs, and the nature of the contracting environment in each country.
Number of Pages in PDF File: 56
Keywords: Outsourcing, Imperfect Contracting, Trade in Intermediate Goods, Intra-industry Trade
JEL Classification: F12, L14, L22, D23
Date posted: October 15, 2002
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