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International Trade and Local Outsourcing

Sugata Marjit, Lei Yang and Xinpeng Xu ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper establishes a crucial link between international trade and local organization of production. By using the standard Heckscher-Ohlin-Samuelson model we show that international trade promotes fragmentation, entrepreneurship and outsourcing due to the capital cost effect and the scale effect. We also unveil one source of productivity and formalize a link between trade and productivity. We illustrate that both the scale effect and the flourish of entrepreneurial talent due to capital cost effect contribute to the improvement of productivity. For the import competing sector the productivity effect and the scale effect move against each other. Accordingly, the impacts of international trade on local outsourcing in export sector are different from that in import competing sector. Further, we find that the above findings still hold in a world where the intermediate goods are tradable. In addition, we demonstrate that a higher trading cost involved in trading the intermediate goods encourages fragmentation and local outsourcing.

Keywords: Trade; Outsourcing; Entrepreneurship; Productivity (search for similar items in EconPapers)
JEL-codes: D23 F11 J54 O47 (search for similar items in EconPapers)
Date: 2009-11
New Economics Papers: this item is included in nep-int
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