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Offshoring and Firm-level Innovation

Author

Listed:
  • Udo Kreickemeier
  • Zhan Qu
  • Florian Unger

Abstract

We develop a two-country general equilibrium model in which heterogeneous firms have access to offshoring and innovation as two alternative ways of reducing production costs. We use our model to answer the question whether better offshoring opportunities lead to more or less innovation at the firm level. We show that switching into offshoring increases firm-level innovation activities when the level of openness of the economy is high, and reduces them if the economy is less open. Via general equilibrium effects, a reduction in offshoring costs unambiguously reduces the innovation activities of non-offshoring firms, whereas innovation in infra-marginal offshoring firms may go up or down. Our paper provides a rationale for contrasting evidence on the relation between offshoring and innovation found in the empirical literature.

Suggested Citation

  • Udo Kreickemeier & Zhan Qu & Florian Unger, 2026. "Offshoring and Firm-level Innovation," CESifo Working Paper Series 12789, CESifo.
    • Handle: RePEc:ces:ceswps:_12789
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    References listed on IDEAS

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    1. Carsten Eckel & Florian Unger, 2023. "Credit Constraints, Endogenous Innovations, And Price Setting In International Trade," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(4), pages 1715-1747, November.
    2. Pol Antràs & Teresa C. Fort & Felix Tintelnot, 2017. "The Margins of Global Sourcing: Theory and Evidence from US Firms," American Economic Review, American Economic Association, vol. 107(9), pages 2514-2564, September.
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    Keywords

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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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