Offshoring along the production chain

Offshoring along the production chain

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Article ID: iaor2012693
Volume: 45
Issue: 1
Start Page Number: 93
End Page Number: 106
Publication Date: Feb 2012
Journal: Canadian Journal of Economics/Revue canadienne d'conomique
Authors: , ,
Keywords: supply & supply chains
Abstract:

In this paper, we analyze the offshoring decision of firms whose production process is characterized by a particular sequence of steps. International cost differences vary non-monotonically along the production chain, and moving unfinished goods across borders incurs transport costs. We show that, in such a setting, firms may refrain from offshoring even if relocating individual steps would be advantageous in terms of offshoring costs, or they may offshore (almost) the entire production chain to save transport costs. Small variations in model parameters may thus have a substantial impact on offshoring activities.

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