We develop a dual representation of the technology of international fragmentation for an industry using 2 factors in a continuum of stages. We then derive a generalised factor price frontier which incorporates an endogenous adjustment of the margin fragmentation. Using this frontier in a 2×2 general equilibrium model, we investigate the role of outsourcing in the adjustment to a decline in the final output price of the multistage industry, and the attendant factor price effects. We also explore the implications of an improved technology of international fragmentation on the margin of fragmentation and on domestic factor prices.

Abstract This paper analyzes the determinants of the sourcing mode of imported inputs at the firm level. We exploit a unique French dataset of 1,141,393 import transactions spanning across firm, countries and products in 1999, where we observe whether a transaction is intra-firm or at arms' length. We first study which firm-, country-and product-specific factors affect the 'make or buy' choice at the firm level (extensive margin). We confirm a number of theoretical predictions of property-rights models, and provide a number of empirical facts that can be used to refine theory. We finally compare our results with previous findings on more aggregated data, highlighting the importance of separating the extensive and intensive margins of imports. Keywords: intra-firm trade; outsourcing; firm heterogeneity; incomplete contracts; internationalization strategies; quality of institutions, extensive margin, intensive margin.

This paper analyzes the offshoring strategy from an empirical view. It focuses on firm heterogeneity, asset specificity and search costs. On the basis of theoretical models, it extracts a set of testable hypotheses and creates a suitable set of variable to test their validity. This analysis is based on a data set from French manufacturing firms that provides detailed information on the offshoring strategy. The choice of offshoring modes is investigated through the estimation of a multinomial probit model and associated to a set of explanatory variables at the firm, industry and country levels. The results emphasize the role of firm heterogeneity, input specificity and of market thickness.

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Using data on a sample of Italian manufacturing companies, this paper analyzes the location (at home or abroad) and the mode of orga-nization (outsourcing versus integration) of intermediate inputs pro-duction. We find evidence of a productivity ordering (largely consis-tent with the assumptions in Antràs and Helpman 2004) where foreign integration is chosen by the most productive firms while domestic out-sourcing is chosen by the least productive firms; firms with medium-high productivity choose domestic integration, firms with medium-low productivity foreign outsourcing. We also find that the preference for integration over outsourcing is positively related to several indica-tors of headquarter intensity, notably of capital intensity, as predicted by Antràs (2003) and Antràs and Helpman (2004). Keywords: in-

Technology transfer costs have a profound influence on the firm’s entry mode into a production sharing relationship. To explore this nexus, we associate technological complexity of the off-shored input with the organizational mode of international production sharing by extending the Antràs (2005) model. We modify the Antràs model by proposing that the low-tech input, as qualified within the model, cannot be produced in the low wage south without costly technology transfer. The cost of technology transfer in turn depends on three factors, which are the technological complexity of this input, the absorptive capacity of the host country and the wages of the host country. Our model refines the results obtained in Antràs (2005). We find that 1. For high-tech goods, intra-firm transfer is preferred vis-à-vis outsourcing only for intermediate range of technological complexity of the off-shored input, 2. On the other hand, for low-tech goods, where the likelihood of outsourcing is higher in Antràs, intra-firm offshore contract is still possible for low range of technological complexity. Our model has policy suggestions for host countries which aspire to maximize their benefits from the exploding global production phenomenon. As the wage gap between the source and the host country falls, cost considerations for offshoring disappear. New sources of comparative advantage should therefore be created in the host country by subsidizing technology investment and higher education to build higher absorptive capacity.

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We develop a model to study the joint determination of the ownership structure of offshoring, skill upgrading, and wage inequality in developing countries. Because of the abundance in low-skilled labor and contractual frictions in the South, the skill content of intra-firm offshoring dominates that of arm’s length offshoring. As a result, processing trade by foreign owned firms has a greater effect on skill upgrading and skill premium in developing countries compared with that by joint ventures and indigenous firms. We test these theoretical implications with a natural experiment in which China lifted its restrictions on foreign ownership upon its accession to the WTO. Empirical findings using detailed Urban Household Surveys and trade data from Chinese customs provide strong support to the proposed theory, shedding light on the changes in firm ownership structures, the skill content of exports, and the evolution of wage inequality over the past two decades in China.

Post-production services, such as sales, distribution, and maintenance, comprise a crucial element of business activity. We explore an international duopoly model in which a foreign …rm has the option of outsourcing post-production services to its domestic rival or providing those services by establishing its own facilities through FDI. We demonstrate that trade liberalization in goods may hurt domestic consumers and lower world welfare, and that the negative welfare impacts are turned into positive ones if service FDI is also liberalized. This …nding yields important policy implications, given the reality that the progress of liberalization in service sectors is still limited. Keywords: post-production services, trade liberalization, FDI, outsourcing, international oligopoly

Abstract: China is a prominent outsourcing destination in Asia. International labour outsourcing, specially in the IT sector, has grown rapidly in recent years. This article defines outsourcing through an extensive review of the literature and discusses the opportunities and challenges for outsourcing to China. Seeking strategic ‘fit ’ among the disparate elements that influence the firm’s outsourcing decision is recommended. The authors explore the IT and business landscapes in China and propose strategies for outsourcing success there.