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Outsourcing Globally During the Product Life Cycle: A Theory and Some Evidence

University of Colorado Working Paper No. 02-8

34 Pages Posted: 15 Jan 2003  

Galina A. An

Kenyon College - Department of Economics

Murat Iyigun

University of Colorado at Boulder - Department of Economics; Harvard University - Center for International Development (CID); IZA Institute of Labor Economics

Date Written: July 2002

Abstract

We develop an analytical framework where products go through a standard life cycle and product quality is driven by cumulative production experience. Production experience influences the nature of cross-country outsourcing activity, and hence, the contents of trade. Multinational enterprises outsource the production of relatively mature, standardized products to low-cost producers with relatively little production experience, and those of more recently developed and non-standard products to producers with relatively more experience. Using panel data covering 110 countries and the period between 1970 and 1997, we find that production experience does help to account for the variation in export content. Developing countries with initally high cumulative production experience produced and exported younger products, whereas those with less experience dealt with more mature products. Our results suggest that intra-industry trade, openness, and foreign direct investment also help to generate exports that are in the earlier stages of their life cycle. Interestingly, once the effect of experience is accounted for, the impact of educational attainment on the average product life cycle of exports is not robust.

Keywords: learning-by-doing, human capital, intra-industry trade

JEL Classification: F10, F23, O11, O31, O40

Suggested Citation

An, Galina A. and Iyigun, Murat, Outsourcing Globally During the Product Life Cycle: A Theory and Some Evidence (July 2002). University of Colorado Working Paper No. 02-8. Available at SSRN: https://ssrn.com/abstract=334582 or http://dx.doi.org/10.2139/ssrn.334582

Galina A. An

Kenyon College - Department of Economics ( email )

Gambier, OH 43022
United States

Murat F. Iyigun (Contact Author)

University of Colorado at Boulder - Department of Economics ( email )

Campus Box 256
Boulder, CO 80309
United States
303-492-6653 (Phone)
303-492-8622 (Fax)

Harvard University - Center for International Development (CID) ( email )

One Eliot Street Building
79 JFK Street
Cambridge, MA 02138
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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