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Domestic And Global Sourcing

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Author Info
WENLI CHENG () (Department of Economics, Monash University, Caulfield East, Victoria, 3145, Australia)
DINGSHENG ZHANG () (Department of Economics, Monash University, Clayton, Victoria, 3800, Australia; China Economics and Management Academy, Central University of Finance and Economics, No. 39 College South Road, Beijing, 100081, China)

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Abstract

This paper develops a general equilibrium Ricardian model with transaction costs to investigate the determinants of the firm's sourcing decision. It derives conditions under which different sourcing choices and corresponding trade patterns occur in general equilibrium. These conditions suggest that, inter alia, the choice between vertical integration and specialisation depends on the relative internal transaction costs associated with vertical integration and external transaction costs associated with international outsourcing; and that the equilibrium sourcing structures and trade patterns are consistent with a refined theory of comparative advantage that incorporates the effects of transaction costs in international trade.

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Publisher Info
Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal Division of Labor & Transaction Costs.

Volume (Year): 02 (2006)
Issue (Month): 01 ()
Pages: 37-53
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Handle: RePEc:wsi:dltcxx:v:02:y:2006:i:01:p:37-53

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Related research
Keywords: Endogenous sourcing decisions transaction costs Ricardian model

Find related papers by JEL classification:
C62 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Existence and Stability Conditions of Equilibrium
D - Microeconomics
E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
F - International Economics
F11 - International Economics - - Trade - - - Neoclassical Models of Trade
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
J2 - Labor and Demographic Economics - - Demand and Supply of Labor
J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
L - Industrial Organization
O - Economic Development, Technological Change, and Growth

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