DP3165 Outsourcing in a Global Economy
|Author(s):||Gene M. Grossman, Elhanan Helpman|
|Publication Date:||January 2002|
|Keyword(s):||imperfect contracting, intra-industry trade, outsourcing, trade in intermediate goods|
|JEL(s):||D23, F12, L14, L22|
|Programme Areas:||International Trade and Regional Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=3165|
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.