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 one. 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.

A. Naghavi, G. Ottaviano (2009). Firm Heterogeneity, Contract Enforcement, and the Industry Dynamics of Offshoring. SCANDINAVIAN JOURNAL OF ECONOMICS, 111, 629-653 [10.1111/j.1467-9442.2009.01587.x].

Firm Heterogeneity, Contract Enforcement, and the Industry Dynamics of Offshoring

NAGHAVI, ALIREZA JAY;OTTAVIANO, GIANMARCO IREO PAOLO
2009

Abstract

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 one. 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.
2009
A. Naghavi, G. Ottaviano (2009). Firm Heterogeneity, Contract Enforcement, and the Industry Dynamics of Offshoring. SCANDINAVIAN JOURNAL OF ECONOMICS, 111, 629-653 [10.1111/j.1467-9442.2009.01587.x].
A. Naghavi; G. Ottaviano
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11585/82644
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