Abstract. In this paper, we examine Hong Kong's role in intermediating trade between China and the rest of the world. Hong Kong distributes a large fraction of China's exports. Net of customs, insurance, and freight charges, re-exports of Chinese goods are much more expensive when they leave Hong Kong than when they enter. Hong Kong markups on re-exports of Chinese goods are higher for differentiated products, products with higher variance in export prices, products sent to China for further processing, and products shipped to countries which have less trade with China. These results are consistent with quality-sorting models of intermediation and with the outsourcing of production tasks from Hong Kong to China. Additional results suggest that Hong Kong traders price discriminate across destination markets and use transfer pricing to shift income from high-tax countries to Hong Kong. The authors thank seminar participants at Florida International University, the International

Public debates on electricity policy in Hong Kong focus on the regulation regime but seldom discuss the macroeconomic impact. In this paper, we use the novel dataset on electricity consumption and report the following findings: (1) there is a long run equilibrium relationship between real GDP and electricity consumption, (2) a one-way causal effect exists from electricity consumption to real GDP, (3) a significant adjustment process occurs when equilibrium is interrupted, (4) there exists possible structural change in the relationship between electricity consumption and economic activities in 1990s.

Krugman (1979) demonstrated that open trade between identical Northern countries leads to a greater variety of consumption and higher real wages. But would the North as a whole be better off when the firms in the North carry out international outsourcing trade? The issue is not well addressed in literature. I therefore present an extension to Krugman’s model, incorporating international outsourcing, to show that, assuming full employment, outsourcing trade not only leads to both higher real wage rates and more product variety, but also raises per capita consumption in the world. The model also suggests that technological improvements in the North raise real wage, per capita consumption, and even product variety.

We argue that trade in intermediate inputs, or “global production sharing, ” is a potentially important explanation for the increase in the wage gap between skilled and unskilled workers in the U.S. and elsewhere. Using a simple model of heterogeneous activities within an industry, we show that trade in inputs has much the same impact on labor demand as does skill-biased technical change: both of these will shift demand away from low-skilled activities, while raising relative demand and wages of the higher skilled. Thus, distinguishing whether the change in wages is due to international trade, or technological change, is fundamentally an empirical rather than a theoretical question. We review three empirical methods that have been used to estimate the effects of trade in intermediate inputs and technological change on wages, and summarize the evidence for the U.S. and other countries.

Abstract The paper expands theoretical and empirical understanding of capabilities development in the mediated offshore outsourcing model whereby a small or a medium-sized firm delivers offshore software services to a larger information technology firm that in turn contracts and interfaces with the actual end-client onshore firms. Such a mediated model has received little prior research attention, although it is common particularly among Chinese firms exporting services to Japan, the largest export market for Chinese software services. We conducted case studies in four China-based software companies to understand the mechanisms used to develop their operational capabilities. We focused on client-specific, process, and human resources capabilities that have been previously associated with vendor success. We found a range of learning mechanisms to build the capabilities in offshore firms. Results show that the development of human resources capabilities was most challenging in the mediated model; yet foundational for the development of the other capabilities. This paper contributes to the information systems literature by improving our understanding of the development of operational capabilities in small-and medium-sized Chinese firms that deploy the mediated model of offshore software services.

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The objective of this study is to identify and understand the process and factors that influence the ‘second-order’ outsourcing decision in context of manufacturing firms in low cost developing countries. Usually, big manufacturing suppliers receive more foreign manufacturing orders than they can handle with their existing infrastructure, and then, transfer part of their manufacturing process to other smaller firms due to the lack of internal capabilities and production factors. This study aims to identify factors that influence large manufacturing suppliers to go for second-order sub-contracting. A simple questionnaire was developed to collect data and a total of 126 responses were collected from mid-level managers of manufacturing outsourcing suppliers. The findings revealed that access to inter-firm resources, company focus, and internal shortages of certain resources and capabilities have significant effects on second-order outsourcing decisions. Both internal and external factors influence managerial decisions and the managers need to evaluate both internal and external environment for maximizing the benefits before adopting the outsourcing as a business strategy.

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The purpose of this paper is to extend Feenstra and Hanson’s (1999) analysis of the impact of international outsourcing on wages by considering quality ladders and product cycles theory. Glass and Saggi (2001) found that international outsourcing induces greater incentives for innovation. Hsu (2011) employed a dynamic general equilibrium model to illustrate that outsourcing may affect skilled workers who conduct research and development (R&D) differently from the way it influences skilled workers in manufacturing departments. This paper employs U.S. manufacturing data and finds that international outsourcing increased the wage of skilled workers who conducted R&D in both the 1970s and the 1980s. Outsourcing and expenditure on R&D also increased the relative wages of white-collar workers who are skilled labor but not related to R&D works in the 1980s. The wages of white-collar labor were not increased by international outsourcing in the 1970s.

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