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The B.E. Journal of Economic Analysis & Policy

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The Value of Information in International Trade: Gains to Outsourcing through Hong Kong

Robert C Feenstra1 / Gordon H. Hanson2 / Songhua Lin3

1University of California. Davis and National Bureau of Economic Research,

2University of California, San Diego, and National Bureau of Economic Research,

3Denison University,

Citation Information: Advances in Economic Analysis & Policy. Volume 4, Issue 1, ISSN (Online) 1538-0637, DOI: 10.2202/1538-0637.1071, August 2004

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In this paper, we estimate the benefits to countries that purchase goods from China by having access to intermediary services provided in Hong Kong. Traders in Hong Kong supply information on markets and producers in China, which provides welfare gains to foreign firms using these services. During the 1990s, Hong Kong intermediated about one-half of the goods that China exported to the rest of the world. Using constant elasticity demand curves, we find that the gains to intermediary services provided by Hong Kong are roughly equal to the value of these Hong Kong re-exports, and four to five times larger than the markups earned in Hong Kong. Using a linear approximation to the demand curves instead, we find that the gains are one-quarter as much as the value of re-exports, or slightly larger than the markups.

Keywords: information; hong kong; discrete choice; outsourcing

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