Firm Heterogeneity and the Relative Prevelance of Outsourcing and FDI
نویسندگان
چکیده
Chinese processing trade has grown considerably as firms have adopted a wide array of organizational forms to have their products assembled in China for export. To understand the coexistence of processing via foreign investment versus multiple forms of outsourcing, we modify Grossman and Helpman’s (2004) of managerial incentives to account for the economic costs associated with various firms’ input control decisions. We then turn to data on Chinese processing trade between 1992 and 2003 to test the model’s predictions. The results show that firm productivity is related to the nature of processing choices. In particular, firms with low productivity favor outsourcing, leaving control over imported inputs to processing factories, while firms with especially high productivity choose outsourcing which retains control of input purchases. Firms with intermediate productivity prefer FDI. The effects of tariffs and transport costs on trade structure are also explored. JEL Code: F14; F23; L22
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