Vertical FDI versus Outsourcing : The Role of Host Country Human Capital

Vertical FDI versus Outsourcing : The Role of Host Country Human Capital

The existing literature on offshoring neglects the importance of host country conditions in affecting the boundaries of a firm. In this paper, we focus on the role of the host country's human capital in affecting the organization of offshore production. Acknowledging that an input is produced o...

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Bibliographic Details
Main Author: Goswami, Arti Grover
Format: Journal Article
Language:en_US
Published: Taylor and Francis 2013
Subjects:
outsourcing
foreign direct investment
training cost
human capital gap
Online Access:http://hdl.handle.net/10986/13270
id okr-10986-13270
recordtype oai_dc
spelling okr-10986-132702021-04-23T14:03:07Z Vertical FDI versus Outsourcing : The Role of Host Country Human Capital Goswami, Arti Grover outsourcing foreign direct investment training cost human capital gap The existing literature on offshoring neglects the importance of host country conditions in affecting the boundaries of a firm. In this paper, we focus on the role of the host country's human capital in affecting the organization of offshore production. Acknowledging that an input is produced offshore only after training the host labor, we propose that this training cost depends on the human capital gap between the home and the host country. Our model finds that a sourcing firm prefers to offshore production internationally only if the human capital gap between the home and the host country is below a threshold. Secondly, as the human capital gap increases, the probability for international outsourcing vis-à-vis intra-firm trade increases. Finally, as opposed to conventional wisdom, our model shows the possibility of outsourcing inputs of a high-tech good when the human capital gap between the home and the host is high. 2013-04-25T16:28:24Z 2013-04-25T16:28:24Z 2011-06-12 Journal Article The Journal of International Trade & Economic Development 0963-8199 http://hdl.handle.net/10986/13270 en_US The Journal of International Trade & Economic Development;21(4) http://creativecommons.org/licenses/by-nc-nd/3.0/igo CC BY-NC-ND 3.0 IGO http://creativecommons.org/licenses/by-nc-nd/3.0/igo/ World Bank Taylor and Francis Journal Article
repository_type Digital Repository
institution_category Foreign Institution
institution Digital Repositories
building World Bank Open Knowledge Repository
collection World Bank
language en_US
topic outsourcing
foreign direct investment
training cost
human capital gap
spellingShingle outsourcing
foreign direct investment
training cost
human capital gap
Goswami, Arti Grover
Vertical FDI versus Outsourcing : The Role of Host Country Human Capital
relation The Journal of International Trade & Economic Development;21(4)
description The existing literature on offshoring neglects the importance of host country conditions in affecting the boundaries of a firm. In this paper, we focus on the role of the host country's human capital in affecting the organization of offshore production. Acknowledging that an input is produced offshore only after training the host labor, we propose that this training cost depends on the human capital gap between the home and the host country. Our model finds that a sourcing firm prefers to offshore production internationally only if the human capital gap between the home and the host country is below a threshold. Secondly, as the human capital gap increases, the probability for international outsourcing vis-à-vis intra-firm trade increases. Finally, as opposed to conventional wisdom, our model shows the possibility of outsourcing inputs of a high-tech good when the human capital gap between the home and the host is high.
format Journal Article
author Goswami, Arti Grover
author_facet Goswami, Arti Grover
author_sort Goswami, Arti Grover
title Vertical FDI versus Outsourcing : The Role of Host Country Human Capital
title_short Vertical FDI versus Outsourcing : The Role of Host Country Human Capital
title_full Vertical FDI versus Outsourcing : The Role of Host Country Human Capital
title_fullStr Vertical FDI versus Outsourcing : The Role of Host Country Human Capital
title_full_unstemmed Vertical FDI versus Outsourcing : The Role of Host Country Human Capital
title_sort vertical fdi versus outsourcing : the role of host country human capital
publisher Taylor and Francis
publishDate 2013
url http://hdl.handle.net/10986/13270
_version_ 1764423053338476544

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