International outsourcing under monopolistic competition: winners and losers

Arbeitspapier

We show that, even with flexible domestic wages, international outsourcing may worsen the welfare of the home country and reduce the profits of all firms. If wages are rigid, outsourcing is welfare-improving if and only if the sum of the “trade creation” effect and the “exploitation effect” exceeds the “trade diversion” effect. A wage subsidy may improve welfare. We also extend the model to a two-period framework. Delaying outsourcing can be gainful because the fixed cost of outsourcing may fall over time. A social planner would choose a different speed of outsourcing than that achieved under laissez-faire.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 2034

Classification and Topics

• Classification: Wirtschaft ; Models of Trade with Imperfect Competition and Scale Economies; Fragmentation ; Trade Policy; International Trade Organizations ; Trade and Labor Market Interactions
• Subject: Offshoring ; Außenwirtschaft ; Lohnrigidität ; Monopolistischer Wettbewerb ; Außenhandelseffekt ; Lohnsubvention ; Wohlfahrtseffekt ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Do, Viet ; van Long, Ngo
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2007

Further information

• Handle: http://hdl.handle.net/10419/26079
• Last update: 10.03.2025, 11:42 AM CET