TY  - JOUR
AU  - Bergin,Paul R.
AU  - Feenstra,Robert C.
AU  - Hanson,Gordon H.
TI  - Outsourcing and Volatility
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13144
PY  - 2007
Y2  - June 2007
UR  - http://www.nber.org/papers/w13144
L1  - http://www.nber.org/papers/w13144.pdf
N1  - Author contact info:
Paul Bergin
Department of Economics
University of California, Davis
One Shields Ave.
Davis, CA 95616
Tel: 530/752-8398
Fax: 530/752-9382
E-Mail: prbergin@ucdavis.edu

Robert C. Feenstra
Department of Economics
University of California, Davis
One Shields Avenue
Davis, CA  95616
Tel: 530/752-7022
Fax: 530/752-9382
E-Mail: rcfeenstra@ucdavis.edu

Gordon H. Hanson
IR/PS 0519
University of California, San Diego
9500 Gilman Drive
La Jolla, CA  92093-0519
Tel: 858/822-5087
Fax: 858/534-3939
E-Mail: gohanson@ucsd.edu
AB  - While outsourcing of production from the U.S. to Mexico has been hailed in Mexico as a valuable engine of growth, recently there have been misgivings regarding its fickleness and volatility. This paper is among the first in the trade literature to study the second moment properties of outsourcing. We begin by documenting a new stylized fact: the maquiladora outsourcing industries in Mexico experience fluctuations in value added that are roughly twice as volatile as the corresponding industries in the U.S. A difference-in-difference method is extended to second moments to verify the statistical significance of this finding. We then develop a stochastic model of outsourcing with heterogeneous firms that can explain this volatility. The model employs two novel mechanisms: an extensive margin in outsourcing which responds endogenously to transmit shocks internationally, and translog preferences which modulate firm entry.
ER  -