Incomplete Contracts and the Welfare Impact of Globalization

Defever, Fabrice; Andres, Frédéric

Defever, Fabrice; Andres, Frédéric (2007), Incomplete Contracts and the Welfare Impact of Globalization, European Economic Association & Econometric Society : Parallel Meetings, 2007-08, Budapest, Hongrie

Type

Communication / Conférence

Date

2007

Conference title

European Economic Association & Econometric Society : Parallel Meetings

Conference date

2007-08

Conference city

Budapest

Conference country

Hongrie

Metadata

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Author(s)

Defever, Fabrice
Andres, Frédéric

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.

Subjects / Keywords

Welfare; Incomplete Contracts; Economic Geography; Interrogeables firms

JEL

R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location
L22 - Firm Organization and Market Structure
F23 - Multinational Firms; International Business