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Trading Tasks: A Simple Theory of Offshoring

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  • Gene M. Grossman
  • Esteban Rossi-Hansberg

Abstract

We propose a theory of the global production process that focuses on tradeable tasks, and use it to study how falling costs of offshoring affect factor prices in the source country. We identify a productivity effect of task trade that benefits the factor whose tasks are more easily moved offshore. In the light of this effect, reductions in the cost of trading tasks can generate shared gains for all domestic factors, in contrast to the distributional conflict that typically results from reductions in the cost of trading goods. (JEL F11, F16)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.98.5.1978
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 98 (2008)
Issue (Month): 5 (December)
Pages: 1978-97

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Handle: RePEc:aea:aecrev:v:98:y:2008:i:5:p:1978-97

Note: DOI: 10.1257/aer.98.5.1978
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References

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  1. Feenstra, R.C. & Hanson, G.H., 1995. "Foreign Investment, Outsourcing and Relative Wages," Department of Economics 95-14, California Davis - Department of Economics.
  2. Deardorff, A.V., 1998. "Fragmentation Across Cones," Papers 98-14, Michigan - Center for Research on Economic & Social Theory.
  3. David Hummels & Dana Rapoport & Kei-Mu Yi, 1998. "Vertical specialization and the changing nature of world trade," Economic Policy Review, Federal Reserve Bank of New York, issue Jun, pages 79-99.
  4. Deardorff, A.V., 1998. "Fragmentation in Simple Trade Models," Papers 98-11, Michigan - Center for Research on Economic & Social Theory.
  5. Marin, Dalia & Verdier, Thierry, 2002. "Globalization and the 'New Enterprise'," CEPR Discussion Papers 3640, C.E.P.R. Discussion Papers.
  6. Rossi-Hansberg, Esteban & Garicano, Luis & Antras, Pol, 2006. "Offshoring in a Knowledge Economy," Scholarly Articles 4784031, Harvard University Department of Economics.
  7. Edward E. Leamer & Michael Storper, 2001. "The Economic Geography of the Internet Age," NBER Working Papers 8450, National Bureau of Economic Research, Inc.
  8. Gene M. Grossman & Elhanan Helpman, 2002. "Managerial Incentives and the International Organization of Production," Working Papers 147, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics..
  9. Gene M. Grossman & Elhanan Helpman, 2002. "Outsourcing in a Global Economy," NBER Working Papers 8728, National Bureau of Economic Research, Inc.
  10. Wilhelm Kohler, 2004. "Aspects of International Fragmentation," Review of International Economics, Wiley Blackwell, vol. 12(5), pages 793-816, November.
  11. Gordon H. Hanson & Raymond J. Mataloni & Matthew J. Slaughter, 2005. "Vertical Production Networks in Multinational Firms," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 664-678, November.
  12. Kei-Mu Yi, 2000. "Can vertical specialization explain the growth of world trade?," Staff Reports 96, Federal Reserve Bank of New York.
  13. Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001. "The nature and growth of vertical specialization in world trade," Journal of International Economics, Elsevier, vol. 54(1), pages 75-96, June.
  14. Pol Antràs, 2003. "Firms, Contracts, and Trade Structure," NBER Working Papers 9740, National Bureau of Economic Research, Inc.
  15. David H. Autor & Frank Levy & Richard J. Murnane, 2001. "The Skill Content of Recent Technological Change: An Empirical Exploration," NBER Working Papers 8337, National Bureau of Economic Research, Inc.
  16. Marin, Dalia & Verdier, Thierry, 2004. "Globalization and the Empowerment of Talent," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 1, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  17. Edward E. Leamer, 1996. "What's the Use of Factor Contents?," NBER Working Papers 5448, National Bureau of Economic Research, Inc.
  18. Helpman, Elhanan & Antras, Pol, 2004. "Global Sourcing," Scholarly Articles 4784029, Harvard University Department of Economics.
  19. repec:bla:restud:v:72:y:2005:i:1:p:135-159 is not listed on IDEAS
  20. Paul Krugman, 1995. "Technology, Trade, and Factor Prices," NBER Working Papers 5355, National Bureau of Economic Research, Inc.
  21. Trefler, Daniel, 1995. "The Case of the Missing Trade and Other Mysteries," American Economic Review, American Economic Association, vol. 85(5), pages 1029-46, December.
  22. Jose Campa & Linda S. Goldberg, 1997. "The Evolving External Orientation of Manufacturing Industries: Evidence from Four Countries," NBER Working Papers 5919, National Bureau of Economic Research, Inc.
  23. Gene M. Grossman & Elhanan Helpman, 2002. "Integration Versus Outsourcing In Industry Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 85-120, February.
  24. Gordon H. Hanson & Raymond J. Mataloni & Matthew J. Slaughter, 2001. "Expansion Strategies of U.S. Multinational Firms," BEA Papers 0012, Bureau of Economic Analysis.
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