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- Title
Firm Heterogeneity, Contract Enforcement, and the Industry Dynamics of Offshoring.
- Authors
Naghavi, Alireza; Ottaviano, Gianmarco
- Abstract
We develop an endogenous growth model with R&D spillovers to study the long-run consequences of offshoring with firm heterogeneity and incomplete contracts. In so doing, we model offshoring as the geographical fragmentation of a firm's production chain between a home upstream division and a foreign downstream division. While there is always a positive correlation between upstream bargaining weight and offshoring activities, there is an inverted U-shaped relationship between these and growth. Whether offshoring with incomplete contracts also increases consumption depends on firm heterogeneity. As for welfare, whereas with complete contracts an R&D subsidy is enough to solve the inefficiency due to R&D spillovers, with incomplete contracts a production subsidy is also needed.
- Subjects
OFFSHORE outsourcing; INCOMPLETE contracts; ECONOMIC development; CONSUMPTION (Economics); INDUSTRIAL productivity
- Publication
Scandinavian Journal of Economics, 2009, Vol 111, Issue 4, p629
- ISSN
0347-0520
- Publication type
Article
- DOI
10.1111/j.1467-9442.2009.01587.x