Arbeitspapier

Preference bias and outsourcing to market: a steady-state analysis

We analyze a model that focuses on the export/outsource decision. Outsourcing has the advantage of providing better information about local preferences. The disadvantage is that producing in the host country also means using the inferior technology embodied in the local capital. The decision of whether to offer an outsourcing contract weighs these two effects against each other. The host country accepts the outsourcing contract if the higher price they pay for the outsourced good is worth the benefit of consuming a manufactured good closer to their ideal variety. These results suggest that as low income countries develop they become a more attractive destination for outsourcing because the quality of their capital improves and the local market is more lucrative. In addition, the developing low income country finds the outsourcing contract more attractive since their increased demand for the correct variety of the manufactured good increases. This suggests that preference based outsourcing is more likely to occur with higher income host countries.

Language
Englisch

Bibliographic citation
Series: CESifo Working Paper ; No. 2222

Classification
Wirtschaft
International Factor Movements and International Business: General
International Investment; Long-term Capital Movements
Multinational Firms; International Business
Subject
outsourcing
multinational firms
foreign direct investment
Outsourcing
Direktinvestition
Multinationales Unternehmen
Standortwahl
Stationäre Volkswirtschaft
Zwei-Länder-Modell
Theorie

Event
Geistige Schöpfung
(who)
Wang, Ping
Riezman, Raymond
Event
Veröffentlichung
(who)
Center for Economic Studies and ifo Institute (CESifo)
(where)
Munich
(when)
2008

Handle
Last update
10.03.2025, 11:43 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Wang, Ping
  • Riezman, Raymond
  • Center for Economic Studies and ifo Institute (CESifo)

Time of origin

  • 2008

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