GEP Research Paper 04/36
Outsourcing and Trade in a Spatial World
Hartmut Egger and Peter Egger
Abstract
This paper provides an analysis of outsourcing and trade in a spatial model à la Hotelling. In this setting, we discuss the trade-off between transport-cost-related disadvantages and outsourcing-induced production cost advantages of a large economy. The model gives a rich picture of possible trade and welfare effects of a movement towards free trade and points to the role of national transport costs for explaining these effects. Moreover, it gives economic insights in the countries' incentives to lower tariffs and to participate in free trade agreements with partner countries that differ in size and economic capacity.
Issued in December 2004.
This paper is available in PDF format .