This dissertation "Essays on Global Outsourcing and Innovation" consists of three papers. The first and the second papers investigate two issues arising from global sourcing of multinational corporations. The third paper empirically studies whether U.S innovation is influenced by intellectual property rights protection in other countries....[ Read more ]
This dissertation "Essays on Global Outsourcing and Innovation" consists of three papers. The first and the second papers investigate two issues arising from global sourcing of multinational corporations. The third paper empirically studies whether U.S innovation is influenced by intellectual property rights protection in other countries.
Chapter one is "Cluster-based Economic Growth and Sourcing Behavior of Multinationals". The paper considers the relationship between global sourcing of multinational enterprises and agglomeration effect of industrial clusters by extending an intra-industry heterogeneity North-South trade model (embedded with property-rights approach). We assume that there is only one cluster in each industry in the South and in the North. The actual scale of a cluster (measured by the number of firms which produce manufacturing goods in the cluster) is determined by the investment or outsourcing choice of multinationals or final goods producers. We investigate respectively the industries of high headquarter intensity and the industries of low headquarter intensity. In either case, multiple equilibria exist. When the headquarter intensity is very low, the multinationals do not produce intermediate goods internally. Normally firms with relatively low productivities find their suppliers in the North whereas firms with relatively high productivities outsource in the South. When the headquarter intensity is high enough, at most three organizational forms exist in equilibrium and no firms outsource in the South. Also, firms with low productivities will procure intermediate goods in the North, while firms which have high productivities will source the inputs from the South.
In either case, we derive that in industries with higher wage rates, more varieties of goods are produced in the South, but not in the North. The reason is that the agglomeration effect of industrial clusters cancels out the effect of higher wage rates on production cost. Therefore, the development mode of cluster-based economic growth in the South is interpreted under our framework. Moreover, in the industries of low headquarter intensity, hollowing-out trend might take place; but in the industries of high headquarter intensity, more varieties of intermediate goods will still be produced in the North rather than in the South. Since the industrial scale of headquarter intensive sector in the South is not as large as that in the North, the paper suggests that high-tech industries of the South should be nurtured under self-reliance policy.
Chapter two is "Global Sourcing: Complete Contract and Imperfect Law Enforcement". It assumes that the contract between a multinational corporation and its outside intermediate supplier is complete, while law enforcement is imperfect when the multinational breach the contract. We investigate the sorting pattern of the organizational forms of multinationals with different productivity. The pattern is described respectively when the law enforcement probability in the South is rather low or much stronger. When the probability of law enforcement in the South is low, at most three organizational forms exist in equilibrium. Firms with lower productivity integrate vertically in the North or in the South, but firms having the highest productivity will outsource their input suppliers in the South. When the probability of law enforcement in the South is high, there are four types of organizational choice of the final-goods producers. Normally, firms with the lowest productivity make internally the intermediate goods in the North whereas firms with highest productivity outsource the intermediate inputs in the South.
Then we study the relative prevalence of different organizational modes. The fraction of firms choosing any particular organizational forms depends on the wage differential across countries, the degree of productivity dispersion in an industry, the probability of law enforcement in the South, the social penalty of breach of contracts, the headquarter intensity of the multinational corporation, the difference of fixed management costs and other factors. Specifically, weaker law enforcement in the South will attract more multinationals to source suppliers overseas and smaller social penalty has a similar effect on the choice of multinationals.
Chapter three is "Does IPR protection in Developing Countries Influence Technological Innovation in the U.S?" It uses patent data to empirically test the relationship between IPR protection in other countries and technological innovation in the U.S. The U.S government always urges developing countries to adopt a more stringent policy towards IPR protection. It often claims that weak protection in these countries would reduce the return of innovation of U.S companies and hamper their incentive towards innovation activity. This paper does a series of regressions and verifies that the U.S argument does not stand up.
We use the data of patent application in 1967-1999 filed in the USPTO (categorized by six technological sectors) to stand for innovation in U.S companies. Dummies are utilized to reflect the policy shift in IPR protection in other countries during this period. Control variables such as per capita GDP, human capital investment, and the dummies of the TRIPS agreement and the CAFC are also included. Moreover, economic linkage strength between the U.S and other countries are considered by using interaction terms in the econometric model.
The regression results do not support that the IPR reform in other countries have promoted innovation in the U.S. The setting up of the CAFC has not had obvious influence, either. We devise some robustness checks to challenge that conclusion. We examine the GDP effect, lagged response to IPR reform, and the effect of time trend etc, and find that the result is credible. However, this paper indicates that U.S innovation was facilitated through domestic policy transformation around the TRIPS which came into force in 1995.