International Outsourcing and R&D: Long‐Run Implications for Consumers* |
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Authors: | Sugata Marjit Arijit Mukherjee |
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Institution: | 1. Centre for Studies in Social Sciences, Kolkata, India, and Department of Economics and Finance, City University of Hong Kong, Tat Chee Avenue, Kowloon, Hong Kong;2. School of Economics and The Leverhulme Centre for Research in Globalisation and Economic Policy, University of Nottingham, University Park, UK |
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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. |
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