Offshoring along the Production Chain

27 Pages Posted: 26 Feb 2009

See all articles by Philipp Harms

Philipp Harms

Study Centre Gerzensee

Oliver Lorz

RWTH Aachen University

Dieter M. Urban

Johannes Gutenberg University of Mainz - Institute for International Economic Theory; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: February 1, 2009

Abstract

Recent contributions on off shoring often assume that firms can freely split their production process into separate steps which can be ranked according to the cost savings from producing abroad. We replace this assumption by the notion of a technologically determined sequence of production steps. In our model, cost savings from off shoring fluctuate along the production chain, and moving unfinished goods across borders causes transport costs. We show that, in such a setting, firms may refrain from off shoring even if relocating individual steps would be advantageous. Conversely, small variations in model parameters may lead to a large increase in offshoring activities.

Keywords: offshoring, international trade, vertical production chain

JEL Classification: D24, F10, F23

Suggested Citation

Harms, Philipp and Lorz, Oliver and Urban, Dieter M., Offshoring along the Production Chain (February 1, 2009). CESifo Working Paper Series No. 2564, Available at SSRN: https://ssrn.com/abstract=1349801

Philipp Harms

Study Centre Gerzensee ( email )

CH-3115 Gerzensee
Switzerland

Oliver Lorz

RWTH Aachen University ( email )

Templergraben 55
D-52056 Aachen, 52056
Germany

Dieter M. Urban (Contact Author)

Johannes Gutenberg University of Mainz - Institute for International Economic Theory ( email )

D 55099 Mainz
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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