Outsourcing and volatility
By: Paul R. Bergin, Robert C. Feenstra, Gordon H. Hanson.
Contributors: Feenstra, Robert C.; Hanson, Gordon H.; National Bureau of Economic Research.
Series: NBER working paper series -- no. 13144.; Working paper series (National Bureau of Economic Research) -- working paper no. 13144.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 44
Subjects: Industries -- Mexican-American Border Region; Offshore assembly industry -- United States -- Econometric models
Description: "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."--abstract.
Notes: "June 2007"

Includes bibliographical references (p. 25-26).

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