Vertical FDI versus Outsourcing: A Welfare Comparison from the Perspective of the Host Country

摘要: The theory on organization of offshore production is most often viewed through the lens a source country. Moreover, internalization literature in vertical transfer context divorced from its welfare consequences. That is, decision to “make or buy” input usually not connected with effect each alternative organizational mode. In this paper we recognize importance mode fragmented for host Whether sharing arrangement internalized by parent firm form foreign direct investment (VFDI) relationship transacted externally outsourcing contracts, affects country significant way. Using Grossman-Helpman quality ladders model and Vernon’s product cycle set up, compare derived two regimes arrangements ability maximize found be contingent absorptive capacity If country's above threshold level, more enhancing vis-a-vis VFDI; while even an lower than threshold, being improving over VFDI cannot ruled out.