Outsourcing and Volatility / Paul R. Bergin, Robert C. Feenstra, Gordon H. Hanson.

Format:

Book

Author/Creator:

Bergin, Paul R.

Contributor:

National Bureau of Economic Research.

Feenstra, Robert C.

Hanson, Gordon H.

Series:

Working Paper Series (National Bureau of Economic Research) no. w13144.

NBER working paper series no. w13144

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2007.

Summary:

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.

Notes:

Print version record

June 2007.