Nottingham Centre for Research on
Globalisation and Economic Policy (GEP)

GEP Research Paper 08/45

 

International Outsourcing and Welfare Reduction: an Entry-deterrence Story

 

Arijit Mukherjee and Yingyi Tsai

Summary

We show that international outsourcing may reduce welfare of the outsourcing country by deterring market-entry, thus showing a new effect which is different from the employment and the quality effects creating negative impacts of outsourcing. Entry deterrence under outsourcing reduces domestic welfare if both the profit extraction and cost saving from outsourcing are sufficiently small.

 

Abstract

 

We show that international outsourcing may reduce welfare of the outsourcing country by deterring market-entry, thus showing a new effect which is different from the employment and the quality effects creating negative impacts of outsourcing. Entry deterrence under outsourcing reduces domestic welfare if both the profit extraction and cost saving from outsourcing are sufficiently small.

 

JEL classification: F12, F21, F23, L12, L13, L24

 

Keywords: Entry, Outsourcing, Welfare

 

Issued in December 2008

 

This paper is available in PDF format

 

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