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ifo Institut – Leibniz-Institut für Wirtschaftsforschung an der Universität München >
CESifo Working Papers, CESifo Group Munich >
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http://hdl.handle.net/10419/26267
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| Title: | | Preference bias and outsourcing to market: a steady-state analysis  |
| Authors: | | Wang, Ping Riezman, Raymond |
| Issue Date: | | 2008 |
| Series/Report no.: | | CESifo working paper 2222 |
| Abstract: | | 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. |
| Subjects: | | outsourcing multinational firms foreign direct investment |
| JEL: | | F20 F21 F23 |
| Document Type: | | Working Paper |
| Appears in Collections: | | CESifo Working Papers, CESifo Group Munich
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