Outsourcing Versus Foreign Direct Investment--A Welfare Analysis

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.outsourcing, foreign direct investment, absorptive capacity

International Outsourcing and the Supply Side Productivity Determinants

A service provider firm in an outsourcing relationship is distinct from a typical firm because it is not a stand alone organization and fits somewhere in between the value chain of its client’s business. Thus, conventional factors like wages, capital, rent, energy consumption cannot appropriately determine a Business Process Outsourcing (BPO) firm’s productivity. Academic research is silent on the factors that influence the performance of a BPO firm even though the issue is pertinent from the perspective of the host country, the sourcing firm, the global outsourcing industry and of course the service provider firm. In this paper, we embark on to explore these factors.productivity, outsourcing, third party vendor

Uncovering Developing Countries’ Performance in Trade in Services

Services play a broad and strategic role in the economy. Trade in services has been expanding rapidly because technological improvements have reduced the cost of cross-border exchange from infinity to virtually zero, thereby allowing for new export activities. Trade in services, particularly business services, has become an element of export diversification for many developing countries. Besides traditional activities such as tourism, activities such as health and information and communication services are among the most successful services exports. This note focuses on the determinants of trade in services for developing countries.developing countries, trade, services, exports, imports, business services, export diversification, tourism, health, information, communications

Landlocked or policy locked ? how services trade protection deepens economic isolation

A new cross-country database on services policy reveals a perverse pattern: many landlocked countries restrict trade in the very services that connect them with the rest of the world. On average, telecommunications and air-transport policies are significantly more restrictive in landlocked countries than elsewhere. The phenomenon is most starkly visible in Sub-Saharan Africa and is associated with lower levels of political accountability. This paper finds evidence that these policies lead to more concentrated market structures and more limited access to services than these countries would otherwise have, even after taking into account the influence of geography and incomes, and the possibility that policy is endogenous. Even moderate liberalization in these sectors could lead to an increase of cellular subscriptions by 7 percentage points and a 20-percent increase in the number of flights. Policies in other countries, industrial and developing alike, also limit competition in international transport services. Hence,"trade-facilitating"investments under various"aid-for-trade"initiatives are likely to earn a low return unless they are accompanied by meaningful reform in these services sectors.Transport Economics Policy&Planning,Markets and Market Access,Public Sector Corruption&Anticorruption Measures,Economic Theory&Research,ICT Policy and Strategies

Highway to Success: The Impact of the Golden Quadrilateral Project for the Location and Performance of Indian Manufacturing

We investigate the impact of the Golden Quadrilateral (GQ) highway project on the Indian organized manufacturing sector using enterprise data. The GQ project upgraded the quality and width of 5,846 km of roads in India. We use a difference-in-difference estimation strategy to compare non-nodal districts based upon their distance from the highway system. We find several positive effects for non-nodal districts located 0–10 km from GQ that are not present in districts 10–50 km away, most notably higher entry rates and increases in plant productivity. These results are not present for districts located on another major highway system, the North-South East-West corridor (NS-EW). Improvements for portions of the NS-EW system were planned to occur at the same time as GQ but were subsequently delayed. Additional tests show that the GQ project's effect operates in part through a stronger sorting of land-intensive industries from nodal districts to non-nodal districts located on the GQ network. The GQ upgrades further helped spread economic activity to moderate-density districts and intermediate cities

Outsourcing Versus Foreign Direct Investment: A Welfare Analysis

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. [Working Paper No. 140]outsourcing, foreign direct investment, absorptive capacity

The Role of Technological Complexity and Absorptive Capacity in Internalization Decision

Technology transfer costs have a profound influence on the firm’s entry mode into a production sharing relationship. To explore this nexus, they associate technological complexity of the off-shored input with the organizational mode of international production sharing by extending the Antràs (2005) model. They modify the Antràs model by proposing that the low-tech input, as qualified within the model, cannot be produced in the low wage south without costly technology transfer. The cost of technology transfer in turn depends on three factors, which are the technological complexity of this input, the absorptive capacity of the host country and the wages of the host country. Theirmodel refines the results obtained in Antràs (2005). [Working Paper No. 153]Outsourcing, Foreign Direct Investment, Technology Transfer, Absorptive Capacity

The Misallocation of Land and Other Factors of Production in India

This paper quantifies the misallocation of manufacturing output and factors of production between establishments across Indian districts during 1989-2010. It first distills a number of stylized facts about misallocation in India, and demonstrates the validity of misallocation metrics by connecting them to regulatory changes in India that affected real property. With this background, the study next quantifies the implications and determinants of factor and output misallocation. Although more-productive establishments in India tend to produce more output, factors of production are grossly misallocated. A better allocation of output and factors of production is associated with greater output per worker. Misallocation of land plays a particularly important role in these challenges