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Abstract

The dawn of the global economy which ushered in trade liberalization has been greeted with mixed feelings among developing countries. This is because liberalization rarely brings about a zero-sum welfare gain among asymmetric participating countries. However, one critical aspect of globalization that can benefit developing countries is the encouragement of foreign sourcing. Outsourcing and foreign direct investment (FDI) will bring about strategic linkages with local buyers, suppliers and other institutions. Against this background, this study makes a case for foreign sourcing in the rice sector vis-à-vis the absorptive capacity of the sector over a projected 10-year (2013-2023) period in Nigeria. It subsequently modelled the welfare implication of FDI and outsourcing on the host nation.This study emphasized the need for increased investment that will enhance technological spillovers to the local producers. The model suggests that at a low level of human capital and high absorptive capacity, it benefits the country to first encourage FDI and subsequently encourage more of outsourcing as it is a better welfare enhancing strategy.The study concludes by recommending the setting up of attractive investment environments and the formulation of sound domestic and macroeconomic policy that would make the country more attractive for investors.

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