Scale Effect, International Outsourcing, and Welfare

Lo Chu-Ping^1,

¹Department of Agricultural Economics, National Taiwan University, Taipei, Taiwan

Cite this paper:
Lo Chu-Ping. Scale Effect, International Outsourcing, and Welfare. Journal of Finance and Economics. 2018; 6(1):26-31. doi: 10.12691/jfe-6-1-4

Abstract

We have presented a simple model to show that trade elasticity is determined by not only consumers’ preferences, but also producers’ comparative advantages in a world where trade is driven by both consumers’ love-of-variety and producers’ comparative advantages. In this model, scale matters in trade elasticity, with smaller countries tending to exhibit a larger one. In addition to tradable intermediate goods, this model also shows that scale is a key factor influencing gains from trade. As a result, smaller countries that are engaged in more international outsourcing activities typically benefit with relatively greater gains from trade after trade liberalization.

Keywords:
gains from trade trade elasticity international outsourcing welfare

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