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International Outsourcing and R&D: Long‐Run Implications for Consumers *

International Outsourcing and R&D: Long‐Run Implications for Consumers * We show that international outsourcing and R&D by the outsourced firm may be either substitutes or complements. Outsourcing increases the R&D investment in small markets and in highly competitive product markets, whereas it decreases the R&D investment in large markets. If the outsourced firm can be technologically very efficient under exporting, outsourcing can make the consumers worse off by reducing the R&D investment. If there is skill differential in the production process and outsourcing occurs only in the unskilled activities, R&D‐reducing outsourcing occurs in a relatively low‐skilled industry. If outsourcing of the unskilled jobs reduces the effective cost of the skilled workers by increasing the productivities of the skilled workers, outsourcing provides further disincentive for R&D compared to the situation where outsourcing of the unskilled jobs does not affect the effective cost of the skilled workers. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of International Economics Wiley

International Outsourcing and R&D: Long‐Run Implications for Consumers *

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References (34)

Publisher
Wiley
Copyright
© 2008 The Authors. Journal compilation © 2008 Blackwell Publishing Ltd
ISSN
0965-7576
eISSN
1467-9396
DOI
10.1111/j.1467-9396.2008.00764.x
Publisher site
See Article on Publisher Site

Abstract

We show that international outsourcing and R&D by the outsourced firm may be either substitutes or complements. Outsourcing increases the R&D investment in small markets and in highly competitive product markets, whereas it decreases the R&D investment in large markets. If the outsourced firm can be technologically very efficient under exporting, outsourcing can make the consumers worse off by reducing the R&D investment. If there is skill differential in the production process and outsourcing occurs only in the unskilled activities, R&D‐reducing outsourcing occurs in a relatively low‐skilled industry. If outsourcing of the unskilled jobs reduces the effective cost of the skilled workers by increasing the productivities of the skilled workers, outsourcing provides further disincentive for R&D compared to the situation where outsourcing of the unskilled jobs does not affect the effective cost of the skilled workers.

Journal

Review of International EconomicsWiley

Published: Nov 1, 2008

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