In this paper we present a dynamic model of a firm which decides whether to outsource parts of its production to a less developed economy where wages and the level of technology are lower. Outsourcing reduces production costs but is associated with spillovers to foreign potential competitors....

In this paper we present a dynamic model of a firm which is deciding whether to outsource parts of its production to a less developed economy where wages and the level of technology are lower. Outsourcing reduces production costs but is associated with spillovers to foreign potential...

In this paper we analyze dynamic incentives of a firm to invest in production facilities in a less developed country with lower wage costs and lower productivity. Foreign investment induces that, due to technological spillovers, productivity of local firms in the foreign country increases. Firms...