Outsourcing versus Fdi in Industry Equilibrium Outsourcing versus Fdi in Industry Equilibrium *

@inproceedings{Grossman2002OutsourcingVF,
  title={Outsourcing versus Fdi in Industry Equilibrium Outsourcing versus Fdi in Industry Equilibrium *},
  author={Gene M. Grossman},
  year={2002}
}
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… CONTINUE READING
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