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Incomplete Contracts and the Welfare Impact of Globalization

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Date
2007
Dewey
Croissance et développement économiques
Sujet
Welfare; Incomplete Contracts; Economic Geography; Interrogeables firms
JEL code
R3; L22; F23
Conference name
European Economic Association & Econometric Society : Parallel Meetings
Conference date
08-2007
Conference city
Budapest
Conference country
Hongrie
URI
https://basepub.dauphine.fr/handle/123456789/4082
Collections
  • LEDa : Publications
Metadata
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Author
Defever, Fabrice
Andres, Frédéric
Type
Communication / Conférence
Abstract (EN)
We embed an incomplete contracts setting into a model of economic geography with heterogeneous firms whose process of production can be geographically separated. Because of the presence of international incomplete contracts, trade liberalization is not necessarily welfare-enhancing. We show that firms that use a large share of the low-tech input relocate first, using outsourcing. Then, more technological firms start to relocate also, but integrating their supplier. We argue that this change in the organizational structure of firms increases the speed of Southern industrialization, but, it might be detrimental to workers’ welfare in both countries.

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