Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaper › Journal article › Research › peer-review
The dynamics of outsourcing : From labor cost-saving to preference-based outsourcing. / Cheng, Wan Jung; Riezman, Raymond; Wang, Ping.
In: International Journal of Economic Theory, Vol. 17, No. 1, 03.2021, p. 57-73.Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaper › Journal article › Research › peer-review
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TY - JOUR
T1 - The dynamics of outsourcing
T2 - From labor cost-saving to preference-based outsourcing
AU - Cheng, Wan Jung
AU - Riezman, Raymond
AU - Wang, Ping
N1 - Publisher Copyright: © 2020 IAET Copyright: Copyright 2020 Elsevier B.V., All rights reserved.
PY - 2021/3
Y1 - 2021/3
N2 - Jones's (2000) celebrated book has inspired a generation of work devoted to understanding the causes and consequences of outsourcing. While much of this work has focused on the outsourcing versus domestic production decision of the firm, with labor cost-saving as the key driver for outsourcing, we further explore how preference-based outsourcing may arise in a dynamic world equilibrium. We address this problem in a North–South model in which the outsourcing decision depends not only on labor costs but also on information about local preferences that arise with outsourcing. As the South develops, demand for manufactured goods becomes more important, so identifying specific tastes of Southern consumers matters more. As a result, preference-based outsourcing displaces cost-saving outsourcing. Our quantitative analysis indicates that, as both agricultural and manufacturing technologies grow over time, the dynamic world equilibrium switches from the export regime to the cost-saving outsourcing regime, and eventually to the preference-based outsourcing regime.
AB - Jones's (2000) celebrated book has inspired a generation of work devoted to understanding the causes and consequences of outsourcing. While much of this work has focused on the outsourcing versus domestic production decision of the firm, with labor cost-saving as the key driver for outsourcing, we further explore how preference-based outsourcing may arise in a dynamic world equilibrium. We address this problem in a North–South model in which the outsourcing decision depends not only on labor costs but also on information about local preferences that arise with outsourcing. As the South develops, demand for manufactured goods becomes more important, so identifying specific tastes of Southern consumers matters more. As a result, preference-based outsourcing displaces cost-saving outsourcing. Our quantitative analysis indicates that, as both agricultural and manufacturing technologies grow over time, the dynamic world equilibrium switches from the export regime to the cost-saving outsourcing regime, and eventually to the preference-based outsourcing regime.
KW - dynamic outsourcing
KW - learning and taste-matching
KW - organizational choice
UR - http://www.scopus.com/inward/record.url?scp=85097604728&partnerID=8YFLogxK
U2 - 10.1111/ijet.12292
DO - 10.1111/ijet.12292
M3 - Journal article
AN - SCOPUS:85097604728
VL - 17
SP - 57
EP - 73
JO - International Journal of Economic Theory
JF - International Journal of Economic Theory
SN - 1742-7355
IS - 1
ER -