SEMINAR: Zhihao You, Carleton University, Canada

In this paper we extend Antràs and Helpman's (2004) framework to investigate the decisions made by multi-product firms regarding different organizational forms in international trade.   We show that those decisions depend on the "quality/cost" ratio of each product.   The model is able to examine not only the different organizational forms of heterogeneous firms in a particular product market but also the evolution of different patterns of global production.  We show that the evolving patterns of inward foreign direct investment (FDI) and outward processing trade observed in China can be explained by the rapid increase in production efficiency relative to the rise in wages.  Furthermore, we find that the increase in the technology spillover raises outward processing trade but reduces inward FDI. The increase in labour productivity in manufacturing industries, however, could raise both inward FDI and outsourcing activities.  The model also predicts that, as labour productivity increases, outsourcing activities will eventually exhibit an inverse U-shape.