Outsourcing Versus Foreign Direct Investment--A Welfare Analysis

Arti Grover

No 140, Working papers from Centre for Development Economics, Delhi School of Economics

Abstract: Foreign direct investment may not necessarily be the most welfare enhancing form of international investment. The host country may avail options like – Joint venture, technology licensing, franchising, outsourcing etc. A host country’s choice of organizational form should depend on its growth and welfare effects. This paper compares the welfare effects of FDI with that of outsourcing in the host country using Grossman-Helpman quality ladders framework. If the host absorptive capacity is above a threshold level, outsourcing is more welfare enhancing vis-à-vis FDI; while even with lower than threshold absorptive capacity, outsourcing being welfare improving over FDI is not ruled out.

Keywords: outsourcing; foreign direct investment; absorptive capacity (search for similar items in EconPapers)
JEL-codes: F12 F23 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2005-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Outsourcing Versus Foreign Direct Investment: A Welfare Analysis (2010)
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