Working Paper: NBER ID: w8728
Authors: Gene M. Grossman; Elhanan Helpman
Abstract: We study the determinants of the location of sub-contracted 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: outsourcing; global economy; international trade; subcontracting
JEL Codes: F12; L14; L22; D23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| thickness of markets (G10) | likelihood of finding suitable partners for outsourcing (L24) |
| thicker market (D49) | probability of finding a partner with the necessary expertise (C52) |
| search technology (O33) | outsourcing success (L24) |
| quality of contracting environment (L14) | relationship-specific investments (D14) |
| contracting environment (M55) | outsourcing outcomes (L24) |