Trade Liberalization and Strategic Outsourcing
Abstract
This paper develops a theory of strategic outsourcing that arises due to trade liberalization. With trade liberalization, a domestic firm may choose to purchase the intermediate good from a more efficient foreign producer, who also competes with the domestic firm in the final-good market. This can result in higher prices for both the intermediate and final goods. Although trade liberalization in the final product would lower the price of the final good, it could cause the price of the intermediate product to either increase or decrease, depending on the characteristics of the final products. Therefore, in the presence of strategic outsourcing, trade liberation can have ambiguous effects on consumer prices, depending on the relative tariff reductions for intermediate and final goods.
Fields of Study & Subjects
Global trade and economics
Outsourcing and Supply Chain Management
Merger and Competition Analysis
Publication details
- Journal / source
- World Scientific Studies in International Economics
- Publisher
- WORLD SCIENTIFIC
- Pages
- 351–376
- Publication date
- 1 January 2026
- Language
- EN
- Document type
- Book chapter