TY  - JOUR
AU  - Mitra,Devashish
AU  - Ranjan,Priya
TI  - Y2K and Offshoring: The Role of External Economies and Firm Heterogeneity
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11718
PY  - 2005
Y2  - October 2005
UR  - http://www.nber.org/papers/w11718
L1  - http://www.nber.org/papers/w11718.pdf
N1  - Author contact info:
Devashish Mitra
Department of Economics
The Maxwell School of Citizenship and
Public Affairs
133, Eggers Hall, Syracuse University
Syracuse, NY  13244
Tel: 315/443-6143
Fax: 315/443-3717
E-Mail: dmitra@maxwell.syr.edu

Priya Ranjan
University of California - Irvine
Department of Economics
3151 Social Science Plaza A
Irvine, CA 92697-5100
pranjan@uci.edu
E-Mail: pranjan@uci.edu
AB  - We construct a model of offshoring with externalities and firm heterogeneity. Due to the presence of externalities, temporary shocks like the Y2K problem can have permanent effects, i.e., they can permanently raise the extent of offshoring in an industry. Also, the initial advantage of a country as a potential host for outsourcing activities can create a lock in effect, whereby late movers have a comparative disadvantage. Furthermore, the existence of firm heterogeneity along with externalities can help explain the dynamic process of offshoring, where the most productive firms offshore first and the others follow later. Finally, we show the possibility of complementarity between two modes of offshoring: FDI and offshore outsourcing.
ER  -