Outsourcing versus FDI in industry equilibrium

Gene M. Grossman, Elhanan Helpman

Research output: Contribution to journalArticlepeer-review

Abstract

We study the determinants of the extent of outsourcing and of direct foreign investment in an industry in which producers need specialized components. Potential suppliers must make a relationship-specific investment in order to serve each prospective customer. Such investments are governed by imperfect contracts. A final-good producer can manufacture components for itself, but the per-unit cost is higher than for specialized suppliers. We consider how the size of the cost differential, the extent of contractual incompleteness, the size of the industry, and the relative wage rate affect the organization of industry production.

Original languageEnglish
Pages (from-to)317-327
Number of pages11
JournalJournal of the European Economic Association
Volume1
Issue number2-3
DOIs
StatePublished - 2003
Externally publishedYes

Fingerprint

Dive into the research topics of 'Outsourcing versus FDI in industry equilibrium'. Together they form a unique fingerprint.

Cite this