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Offshoring Production: A Simple Model Of Wages, Productivity, And Growth

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  • COLIN DAVIS
  • ALIREZA NAGHAVI

Abstract

We examine the relationship between o¤shoring and the labour market in an occupational choice model of trade and endogenous growth where workers are employed on the basis of their individual skill levels. Trade liberalization leads to o¤shoring and reduces employment in the manufacturing sector. Displaced workers move into the traditional and innovation sectors ac- cording to their skill levels, shaping real wages and aggregate productivity in the manufacturing sector. The paper aims to show how inter-sectoral labour market adjustments, highlighted by skill heterogeneity, could be a possible explanation for the simultaneous rise in productivity and reduction in real wages that have coincided with the sharp escalation of o¤shoring activities in the US manufacturing sector since 2004.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 49 (2011)
Issue (Month): 2 (04)
Pages: 334-348

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Handle: RePEc:bla:ecinqu:v:49:y:2011:i:2:p:334-348

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References

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  1. Paul Romer, 1989. "Endogenous Technological Change," NBER Working Papers 3210, National Bureau of Economic Research, Inc.
  2. Pol Antràs & Luis Garicano & Esteban Rossi-Hansberg, 2005. "Offshoring in a Knowledge Economy," NBER Working Papers 11094, National Bureau of Economic Research, Inc.
  3. N. Gregory Mankiw & Phillip Swagel, 2006. "The Politics and Economics of Offshore Outsourcing," Harvard Institute of Economic Research Working Papers 2120, Harvard - Institute of Economic Research.
  4. Glass, Amy Jocelyn & Saggi, Kamal, 2001. "Innovation and wage effects of international outsourcing," European Economic Review, Elsevier, vol. 45(1), pages 67-86, January.
  5. Feenstra, Robert C & Hanson, Gordon H, 1996. "Globalization, Outsourcing, and Wage Inequality," American Economic Review, American Economic Association, vol. 86(2), pages 240-45, May.
  6. Martin, Philippe & I.P. Ottaviano, Gianmarco, 1999. "Growing locations: Industry location in a model of endogenous growth," European Economic Review, Elsevier, vol. 43(2), pages 281-302, February.
  7. repec:hrv:faseco:4784031 is not listed on IDEAS
  8. Alexander Hijzen, 2007. "International Outsourcing, Technological Change, and Wage Inequality," Review of International Economics, Wiley Blackwell, vol. 15(1), pages 188-205, 02.
  9. Ekholm, Karolina & Ulltveit-Moe, Karen-Helene, 2007. "A New Look at Offshoring and Inequality: Specialization Versus Competition," CEPR Discussion Papers 6402, C.E.P.R. Discussion Papers.
  10. Gene M. Grossman & Esteban Rossi-Hansberg, 2006. "Trading Tasks: A Simple Theory of Offshoring," NBER Working Papers 12721, National Bureau of Economic Research, Inc.
  11. Choi, E. Kwan & Harrigan, James, 2003. "Handbook of International Trade," Staff General Research Papers 11375, Iowa State University, Department of Economics.
  12. Robert Feenstra & Gordon Hanson, 2001. "Global Production Sharing and Rising Inequality: A Survey of Trade and Wages," NBER Working Papers 8372, National Bureau of Economic Research, Inc.
  13. Roberto Antonietti & Davide Antonioli, 2009. "Production offshoring and the skill composition of Italian manufacturing firms: a counterfactual analysis," Openloc Working Papers 0903, Public policies and local development.
  14. Yeaple, Stephen Ross, 2005. "A simple model of firm heterogeneity, international trade, and wages," Journal of International Economics, Elsevier, vol. 65(1), pages 1-20, January.
  15. Gao, Ting, 2005. "Foreign direct investment and growth under economic integration," Journal of International Economics, Elsevier, vol. 67(1), pages 157-174, September.
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Cited by:
  1. da Silveira, Giovani J.C., 2014. "An empirical analysis of manufacturing competitive factors and offshoring," International Journal of Production Economics, Elsevier, vol. 150(C), pages 163-173.

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