Abstract

http://ssrn.com/abstract=995490
 
 

References (32)



 
 

Citations (7)



 


 



Temporary Shocks and Offshoring: The Role of External Economies and Firm Heterogeneity


Devashish Mitra


Syracuse University - Department of Economics; National Bureau of Economic Research (NBER); Institute for the Study of Labor (IZA)

Priya Ranjan


University of California, Irvine - Department of Economics

May 2007

IZA Discussion Paper No. 2811

Abstract:     
We construct a model of offshoring with externalities and firm heterogeneity. Due to the presence of externalities, temporary shocks like the Y2K problem can have permanent effects, i.e., they can permanently raise the extent of offshoring in an industry. Also, the initial advantage of a country as a potential host for outsourcing activities can create a lock in effect, whereby late movers have a comparative disadvantage. Furthermore, the existence of firm heterogeneity along with externalities can help explain the dynamic process of offshoring, where the most productive firms offshore first and the others follow later. Finally, we work out some unexpected welfare implications which show that net industry profits can be lower in an outsourcing equilibrium than in a regime of no outsourcing. Consumer welfare rises, and under fairly plausible conditions this effect can offset the negative impact on profits.

Number of Pages in PDF File: 33

Keywords: offshoring, outsourcing, Y2K, complementarity

JEL Classification: F12, F23, O19

working papers series


Download This Paper

Date posted: June 21, 2007  

Suggested Citation

Mitra, Devashish and Ranjan, Priya, Temporary Shocks and Offshoring: The Role of External Economies and Firm Heterogeneity (May 2007). IZA Discussion Paper No. 2811. Available at SSRN: http://ssrn.com/abstract=995490 or http://dx.doi.org/10.2139/ssrn.995490

Contact Information

Devashish Mitra (Contact Author)
Syracuse University - Department of Economics ( email )
The Maxwell School of Citizenship & Public Affairs
133 Eggers Hall
Syracuse, NY 13244-1020
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Institute for the Study of Labor (IZA)
P.O. Box 7240
Bonn, D-53072
Germany
Priya Ranjan
University of California, Irvine - Department of Economics ( email )
3151 Social Science Plaza
Irvine, CA 92697-5100
United States
Feedback to SSRN


Paper statistics
Abstract Views: 624
Downloads: 53
Download Rank: 225,253
References:  32
Citations:  7

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo1 in 0.328 seconds