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Offshore outsourcing and research and development outsourcing

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This paper introduces a theoretical model explaining the most recent muddles over research and development (R&D) outsourcing. The paper shows that a corporation in developed countries considers the outsourcing as opportunities for increasing output and reducing production cost and the level of outsourcing depends on the different degree of technology spillovers and wages. | ECONOMIC DEVELOPMENT No. 206, October 2011 OFFSHORE OUTSOURCING AND RESEARCH AND DEVELOPMENT OUTSOURCING OFFSHORE OUTSOURCING AND RESEARCH AND DEVELOPMENT OUTSOURCING by Dr. NGUYEÃN VAÊN PHÖÔNG* by Dr. NGUYEÃN VAÊN PHÖÔNG* The international outsourcing has been a matter of concern in recent times when the global integration generally speeds up. Its effects are considered as one of main channels for technology spillovers and productivity improvement via reducing investment costs. This paper introduces a theoretical model explaining the most recent muddles over research and development (R&D) outsourcing. The paper shows that a corporation in developed countries considers the outsourcing as opportunities for increasing output and reducing production cost and the level of outsourcing depends on the different degree of technology spillovers and wages. Results of two recent surveys have supported our theoretical model. Specifically, we also find the current business climate in Vietnam should be improved to satisfy the criteria for receiving more capital inflows from offshore and R&D outsourcing. Keywords: Offshore outsourcing, R&D outsourcing, technology spillovers. 1. Introduction The offshore outsourcing is playing an essential role in globalization. Globalization has required many companies to relocate their production in the best place to reduce production cost through better use of natural resources and human capital. Moreover, globalization has also forced firms to face a keener competition. Therefore, to exist in such a competitive environment, firms have to undertake various activities and organize everything better, from inputs to outputs, from product design to assembly, from research and development (R&D) to market share, from distribution to after-sales services and so on. Outsourcing is one of these essential activities in the global economy. There are many studies of offshore outsourcing in the era of globalization. For instance, Grossman and Helpman .