Incomplete Contracts and the Welfare Impact of Globalization

Andres, Frédéric; Defever, Fabrice

Andres, Frédéric; Defever, Fabrice (2007), Incomplete Contracts and the Welfare Impact of Globalization, 56ème congrès annuel de l'AFSE (Association française de science économique), 2007-09, Paris, France

Type

Communication / Conférence

Date

2007

Conference title

56ème congrès annuel de l'AFSE (Association française de science économique)

Conference date

2007-09

Conference city

Paris

Conference country

France

Metadata

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Author(s)

Andres, Frédéric
Defever, Fabrice

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; Interrogeables firms; Economic Geography; Incomplete Contracts

JEL

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