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Title:International outsourcing under monopolistic competition: winners and losers PDF Logo
Authors:Do, Viet
van Long, Ngo
Issue Date:2007
Series/Report no.:CESifo working paper 2034
Abstract: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.
JEL:F12
F13
F16
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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