Outsourcing Versus FDI in Industry Equilibrium

Gene Grossman () and Elhanan Helpman

No 3647, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study the determinants of the extent of outsourcing and of direct foreign investment in an industry in which producers need specialized components. Potential suppliers must make a relationship-specific investment in order to serve each prospective customer. Such investments are governed by imperfect contracts. A final-good producer can manufacture components for itself, but the per-unit cost is higher than for specialized suppliers. We consider how the size of the cost differential, the extent of contractual incompleteness, the size of the industry, and the relative wage rate affect the organization of industry production.

Keywords: direct foreign investment; imperfect contracting; intra-industry trade; multinational corporations; outsourcing (search for similar items in EconPapers)
JEL-codes: D23 F12 F23 L22 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn
Date: 2002-11
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Related works:
Working Paper: Outsourcing versus FDI in Industry Equilibrium (2002)
Working Paper: Outsourcing versus FDI in Industry Equilibrium? (2002)
Working Paper: Outsourcing versus FDI in Industry Equilibrium (2002)
Journal Article: Outsourcing Versus FDI in Industry Equilibrium (2003)
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