Trade Liberalization, Outsourcing, and Firm Productivity

Ralph Ossa

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: Empirical evidence suggests that trade liberalization increases firm productivity. This paper offers a novel explanation for this finding. I develop a simple general equilibrium model of trade in which trade liberalization leads to outsourcing as firms focus on their core competencies in response to tougher competition. Since firms are the better at performing tasks the closer they are to their core competencies, this outsourcing increases firm productivity. Moreover, I also investigate the links between various technological parameters and outsourcing. In particular, I analyze how technological progress, changes in fixed costs, and changes in internal governance costs affect firms' integration decisions.

Keywords: Trade Liberalization; Outsourcing; Productivity (search for similar items in EconPapers)
JEL-codes: F10 F12 L22 L25 (search for similar items in EconPapers)
Date: 2007-07
New Economics Papers: this item is included in nep-bec and nep-int
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Working Paper: Trade liberalization, outsourcing, and firm productivity (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:cep:cepdps:dp0814

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