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Offshoring in a Ricardian World

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  • Andrés Rodríguez-Clare

Abstract

This paper proposes a Ricardian model to understand the short-run and long-run aggregate effects of increased fragmentation and offshoring on rich and poor countries. The short-run analysis shows that, when offshoring is sufficiently high, further increases in offshoring benefit the poor country and hurt the rich country. But these effects may be reversed in the long run as countries adjust their research efforts in response to increased offshoring. In particular, in the long run, the rich country always gains from increased offshoring, whereas poor countries see their static gains partially eroded by a decline in their research efforts. (JEL F12, F23, L24, M16)

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Macroeconomics.

Volume (Year): 2 (2010)
Issue (Month): 2 (April)
Pages: 227-58

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Handle: RePEc:aea:aejmac:v:2:y:2010:i:2:p:227-58

Note: DOI: 10.1257/mac.2.2.227
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  1. David H. Autor & Frank Levy & Richard J. Murnane, 2003. "The Skill Content Of Recent Technological Change: An Empirical Exploration," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 118(4), pages 1279-1333, November.
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  3. Alvarez, Fernando & Lucas, Robert Jr., 2007. "General equilibrium analysis of the Eaton-Kortum model of international trade," Journal of Monetary Economics, Elsevier, Elsevier, vol. 54(6), pages 1726-1768, September.
  4. Martin Neil Baily & Robert Z. Lawrence, 2004. "What Happened to the Great U.S. Job Machine? The Role of Trade and Electronic Offshoring," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 35(2), pages 211-284.
  5. Paul A. Samuelson, 2004. "Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 18(3), pages 135-146, Summer.
  6. Alireza Naghavi & Gianmarco Ottaviano, 2009. "Offshoring and product innovation," Economic Theory, Springer, Springer, vol. 38(3), pages 517-532, March.
  7. Richard E. Baldwin & Frédéric Robert-Nicoud, 2007. "Offshoring: general equilibrium effects on wages, production and trade," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 19720, London School of Economics and Political Science, LSE Library.
  8. Jonathan Eaton & Samuel Kortum, 2001. "Technology, Trade, and Growth: A Unified Fremework," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series, Boston University - Department of Economics dp-110, Boston University - Department of Economics.
  9. Jones, Ronald W., 2005. "Immigration vs. outsourcing: Effects on labor markets," International Review of Economics & Finance, Elsevier, Elsevier, vol. 14(2), pages 105-114.
  10. Robert C. Feenstra & Gordon H. Hanson, 1999. "The Impact Of Outsourcing And High-Technology Capital On Wages: Estimates For The United States, 1979-1990," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 114(3), pages 907-940, August.
  11. Donald R. Davis & David E. Weinstein, 2002. "Technological superiority and the losses from migration," Discussion Papers, Columbia University, Department of Economics 0102-60, Columbia University, Department of Economics.
  12. Gregory Mankiw, N. & Swagel, Phillip, 2006. "The politics and economics of offshore outsourcing," Journal of Monetary Economics, Elsevier, Elsevier, vol. 53(5), pages 1027-1056, July.
  13. Glass, Amy Jocelyn & Saggi, Kamal, 2001. "Innovation and wage effects of international outsourcing," European Economic Review, Elsevier, Elsevier, vol. 45(1), pages 67-86, January.
  14. Deardorff, Alan V., 2001. "Fragmentation in simple trade models," The North American Journal of Economics and Finance, Elsevier, Elsevier, vol. 12(2), pages 121-137, July.
  15. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, Econometric Society, vol. 70(5), pages 1741-1779, September.
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  18. Kei-Mu Yi, 2003. "Can Vertical Specialization Explain the Growth of World Trade?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 111(1), pages 52-102, February.
  19. repec:fth:bosecd:110 is not listed on IDEAS
  20. Gene M. Grossman & Esteban Rossi-Hansberg, 2006. "The rise of offshoring: it's not wine for cloth anymore," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, pages 59-102.
  21. Edward E. Leamer, 2007. "A Flat World, a Level Playing Field, a Small World After All, or None of the Above? A Review of Thomas L Friedman's The World is Flat," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 45(1), pages 83-126, March.
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