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| Srl | Item |
| 1 |
ID:
134858
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| Summary/Abstract |
Why do many of the world's most productive firms prefer global outsourcing to FDI? To address this issue, this paper introduces an intermediate-good producer to Antràs and Helpman's (2004) North–South model, where the Northern firms can employ the producer via an outsourcing contract and have the producer engage in FDI in the South. This strategy could substantially reduce both the incomplete contract distortion and the associated tailoring cost if the intermediate-good producer shares ethnic heritage with the South. Then, the most productive firms, not only in the consumer electronics but also the labor-intensive industries, overwhelmingly apply this strategy rather than FDI.
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| 2 |
ID:
089557
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| Publication |
2009.
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| Summary/Abstract |
We extend the model of Antràs and Helpman (Antràs, P., Helpman, E., 2004. Global Sourcing. Journal of Political Economy 112(3), 552-580) by incorporating the merits of Zhang and Markusen (Zhang, K.H., Markusen, J.R., 1999. Vertical Multinationals and Host-country Characteristics. Journal of Development Economics 59(2), 233-252.) to demonstrate why China has been so successful in disproportionately attracting foreign offshore manufacturing activities, while India has been engaged mainly in offshore service activities. We argue that the host country's industry-specific technology capabilities make the difference in FDI composition between China and India. In addition to incomplete contract frictions, the host country's technological capabilities, which affect technology transfer costs, are essential to FDI inflows. We also find that, after excluding overseas Chinese investment, India is almost on par with China in terms of the market size it offers to marketing-seeking FDI.
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