Firm Heterogeneity, Contract Enforcement, and the Industry Dynamics of Offshoring
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. Copyright The editors of the "Scandinavian Journal of Economics" 2009 .
Year of publication: |
2009
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Authors: | Naghavi, Alireza ; Ottaviano, Gianmarco |
Published in: |
Scandinavian Journal of Economics. - Wiley Blackwell, ISSN 1467-9442. - Vol. 111.2009, 4, p. 629-653
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Publisher: |
Wiley Blackwell |
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