DOMESTIC AND GLOBAL SOURCING

Wenli Cheng and Dingsheng Zhang

No 05/05, Monash Economics Working Papers from Monash University, Department of Economics

Abstract: This paper develops a general equilibrium Ricardian model with transaction costs to investigate the determinants of the firm's sourcing decision. It derives conditions under which different sourcing choices and corresponding trade patterns occur in general equilibrium. These conditions suggest that, inter alia, the choice between vertical integration and specialisation depends on the relative internal transaction costs associated with vertical integration and external transaction costs associated with international outsourcing; and that the equilibrium sourcing structures and trade patterns are consistent with a refined theory of comparative advantage that incorporates the effects of transaction costs in international trade.

Keywords: endogenous sourcing decisions; transaction costs; Ricardian model (search for similar items in EconPapers)
JEL-codes: F19 L2 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2005-04-02
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Journal Article: DOMESTIC AND GLOBAL SOURCING (2006)
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