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Outsourcing Versus Foreign Direct Investment--A Welfare Analysis

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  • Arti Grover

    (Delhi School of Economics)

Abstract

Foreign direct investment may not necessarily be the most welfare enhancing form of international investment. The host country may avail options like – Joint venture, technology licensing, franchising, outsourcing etc. A host country’s choice of organizational form should depend on its growth and welfare effects. This paper compares the welfare effects of FDI with that of outsourcing in the host country using Grossman-Helpman quality ladders framework. If the host absorptive capacity is above a threshold level, outsourcing is more welfare enhancing vis-à-vis FDI; while even with lower than threshold absorptive capacity, outsourcing being welfare improving over FDI is not ruled out.

Suggested Citation

  • Arti Grover, 2005. "Outsourcing Versus Foreign Direct Investment--A Welfare Analysis," Working papers 140, Centre for Development Economics, Delhi School of Economics.
    • Handle: RePEc:cde:cdewps:140
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    More about this item

    Keywords

    outsourcing; foreign direct investment; absorptive capacity;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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