The Role of Public Infrastructure for Firm Location and International Outsourcing

38 Pages Posted: 26 Jun 2003

See all articles by Hartmut Egger

Hartmut Egger

University of Zurich - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Josef Falkinger

University of Zurich - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Date Written: June 2003

Abstract

This paper presents a model in which final goods producers outsource intermediate input production. Intermediate inputs are differentiated and their production can be located at home or abroad. The model is used to examine competitive location policy in a (two-country) free trade agreement (FTA). It is shown that national public infrastructure investment has a positive effect on both the number of intermediate input producers and the return to the immobile factor in the home country. International outsourcing from home declines. Opposite effects are triggered in the partner country. In a welfare analysis we characterize national infrastructure policies that aim to maximize national income (net of tax costs) and compare the non-cooperative FTA-equilibrium with optimal policies from an integrated point of view. It is shown when coordination of competitive location policies is useful and when it is not.

Keywords: International Outsourcing, Firm Location, Public Infrastructure, Welfare Effects

JEL Classification: F12, F15, F42, H54

Suggested Citation

Egger, Hartmut and Falkinger, Josef, The Role of Public Infrastructure for Firm Location and International Outsourcing (June 2003). Available at SSRN: https://ssrn.com/abstract=419144 or http://dx.doi.org/10.2139/ssrn.419144

Hartmut Egger

University of Zurich - Department of Economics ( email )

Zürichbergstrasse 14
CH-8032 Zurich
Switzerland

HOME PAGE: http://www.wwi.unizh.ch/staff/egger/index.php

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

Josef Falkinger (Contact Author)

University of Zurich - Department of Economics ( email )

Zuerich, 8006
Switzerland

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

IZA Institute of Labor Economics

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

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