The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

International Outsourcing

  • Deborah L. Swenson
Reference work entry


International outsourcing involves the import of intermediate inputs or services from unaffiliated foreign suppliers. While it implies that the production of a final product involves production activities in more than one country, this trade in intermediate inputs can be explained by traditional theories of international trade where countries have comparative advantage in different stages of production. However, since outsourcing relationships involve interaction with foreign partners, the choice of organizational form for these transactions is also influenced by industrial organization factors, such as search costs or contract incompleteness. This article discusses these issues and the effects of outsourcing on the international economy.


Comparative advantage Factor price equalization Foreign direct investment Hold-up problem Incomplete contracts Intermediate inputs International outsourcing Matching North–South economic relations Offshoring Search costs Sunk costs Trade costs Thick markets Transport costs Vertical integration 

JEL Classifications

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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Deborah L. Swenson
    • 1
  1. 1.