Outsourcing in a Global Economy

Grossman, Gene M.; Helpman, Elhanan

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Outsourcing in a Global Economy

57 Pages Posted: 19 Feb 2002

See all articles by Gene M. Grossman

Gene M. Grossman

Princeton University - Princeton 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)

Elhanan Helpman

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

There are 3 versions of this paper

Date Written: January 2002

Abstract

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.

Keywords: Outsourcing, imperfect contracting, trade in intermediate goods, intra-industry trade

JEL Classification: D23, F12, L14, L22

Suggested Citation: Suggested Citation

Grossman, Gene M. and Helpman, Elhanan, Outsourcing in a Global Economy (January 2002). Available at SSRN: https://ssrn.com/abstract=300701