Firm Heterogeneity, Contract Enforcement, and the Industry Dynamics of Offshoring

Alireza Naghavi and Gianmarco Ottaviano

No 282, Development Working Papers from Centro Studi Luca d'Agliano, University of Milano

Abstract: We develop an endogenous growth model with R&D spillovers to study the long run consequences of offshoring with firm heterogeneity and incomplete contracts. In so doing, we model offshoring as the geographical fragmentation of a firm’s production chain between a home upstream division and a foreign downstream one. While there is always a positive correlation between upstream bargaining weight and offshoring activities, there is an inverted U-shaped relationship between these and growth. Whether offshoring with incomplete contracts also increases consumption depends on firm heterogeneity. As for welfare, whereas with complete contracts an R&D subsidy is enough to solve the inefficiency due to R&D spillovers, with incomplete contracts a production subsidy is also needed.

Keywords: o¤shoring; heterogeneous rms; incomplete contracts; industry dynamics (search for similar items in EconPapers)
JEL-codes: D23 F23 L23 O31 O43 (search for similar items in EconPapers)
Pages: 36
Date: 2009-11-17
New Economics Papers: this item is included in nep-bec, nep-com and nep-int
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Firm Heterogeneity, Contract Enforcement, and the Industry Dynamics of Offshoring (2009)
Working Paper: Firm Heterogeneity, Contract Enforcement, and the Industry Dynamics of Offshoring (2009)
Working Paper: Firm Heterogeneity, Contract Enforcement, and the Industry Dynamics of Offshoring (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:csl:devewp:282

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