Wilhelm Kohler, CESifo guest in March/April 2014
Dynamic Issues of Offshoring
The dynamic effects of offshoring that arise through the channels of R&D and skill formation are Wilhelm Kohler's current research focus. The principal idea is that offshoring may – through general equilibrium repercussions – alter the incentives for accumulation of technological knowledge as well as the incentives for skill formation and professional choice. It thus becomes important to distinguish between the short-run and the long-run effects of offshoring, an issue that to date has not received much attention in the literature.
Offshoring may also play a role also in R&D itself, where issues of incomplete contracts and international knowledge spillovers and imitation come into play. Borrowing from endogenous growth theory Kohler, in collaboration with Ifo researchers Sebastion Benz and Erdal Yalcin, extend existing models of offshoring so that they are able to address its long-run effects. A further issue taken up in their research is the role that uncertainty plays in firms’ offshoring decisions. If some underlying fundamental variable driving the profitability of offshoring evolves according a stochastic process (e.g., a Brownian motion), and if switching between modes of input sourcing causes fixed costs, then the timing becomes an interesting element of the offshoring decision.
While visiting the Ifo Institute (26 March to 6 April 2013), Mr Kohler, Mr Benz and Mr Yalcin will analyse this with models borrowed from option value theory. Uncertainty may also be present in the policy environments of the domestic and/or the foreign economy (e.g., trade policy or tax policy), whence offshoring may become a vehicle for firms to optimally react to such policy uncertainty.
This research project, funded by the German Science Foundation (DFG), is part of a long-term cooperation between the Ifo Institute and the University of Tübingen.
Wilhlm Kohler is Professor of Economics at the University of Tübingen. He is also Research Professor in the Ifo Center for International Economics and Fellow of the CESifo Research Network. He was previously Professor of Economics at the University of Linz and Professor of Economics at the University of Essen. His journal editorships include The Review of International Economics and The Journal of International Economics and Economic Policy. He is also a member of the Review Board for Economics at the German Research Foundation (DFG). His doctorate as well as his postdoctoral degree (Venia Docendi) in Economics is from the Faculty of Economics and Social Science at the University of Innsbruck.