Transport cost and outsourcing of multinational firms in East Asia

Multinational films look for the optimal production network and product pattern around world. The East Asia becomes very important production location in the world. We focus on the development of regional economy integration and production division in East Asia. We formulated a two country model to investigate the outsourcing location choice by heterogeneous firms between counties. In our model, we assumed that large different and heterogeneous about wage rate and productivity between East Asia countries. We point out that according to characteristic of intermediate goods which have knowledge intensive, labor intensive and raw materials intensive, the firms will consider the factor of wage rate and heterogeneous productivity between two countries and transport cost. When decline the transport cost, the firms will change to outsourcing to more efficiently one country, and it will improve consumer welfare and social welfare in both countries.