Journal Article

Outsourcing in a Global Economy

Gene M. Grossman and Elhanan Helpman

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 72, issue 1, pages 135-159
Published in print January 2005 | ISSN: 0034-6527
Published online January 2005 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/0034-6527.00327
Outsourcing in a Global Economy

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  • International Factor Movements and International Business
  • Firm Objectives, Organization, and Behaviour
  • Macroeconomic Aspects of International Trade and Finance

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We study the determinants of the location of subcontracted activity in a general equilibrium model of outsourcing and trade. We model outsourcing as an activity that requires search for a partner and relationship-specific investments that are governed by incomplete contracts. The extent of international outsourcing depends inter alia on the thickness of the domestic and foreign market for input suppliers, the relative cost of searching in each market, the relative cost of customizing inputs and the nature of the contracting environment in each country.

Keywords: F21; F23; F41; L24

Journal Article.  13594 words.  Illustrated.

Subjects: International Factor Movements and International Business ; Firm Objectives, Organization, and Behaviour ; Macroeconomic Aspects of International Trade and Finance

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