Y2K and Offshoring: The Role of External Economies and Firm Heterogeneity

Devashish Mitra () and Priya Ranjan ()
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Priya Ranjan: Department of Economics, University of California-Irvine
Authors registered in the RePEc Author Service: Priyaranjan Jha

No 50605, Working Papers from University of California-Irvine, Department of Economics

Abstract: We construct a model of offshoring with externalities and firm heterogeneity. Due to the presence of externalities, temporary shocks like the Y2K problem can have permanent effects, i.e., they can permanently raise the extent of offshoring in an industry. Also, the initial advantage of a country as a potential host for outsourcing activities can create a lock in effect, whereby late movers have a comparative disadvantage. Furthermore, the existence of firm heterogeneity along with externalities can help explain the dynamic process of offshoring, where the most productive firms offshore first and the others follow later. Finally, we show the possibility of complementarity between two modes of offshoring: FDI and offshore outsourcing.

JEL-codes: F1 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2005-10
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (3)

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Working Paper: Y2K and Offshoring: The Role of External Economies and Firm Heterogeneity (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:irv:wpaper:050605

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