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Offshoring in a Knowledge Economy

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  • Pol Antràs
  • Luis Garicano
  • Esteban Rossi-Hansberg

Abstract

How does the formation of cross-country teams affect the organization of work and the structure of wages? To study this question, we propose a theory of the assignment of heterogeneous agents into hierarchical teams, where less skilled agents specialize in production and more skilled agents specialize in problem solving. We first analyze the properties of the competitive equilibrium of the model in a closed economy, and show that the model has a unique and efficient solution. We then study the equilibrium of a two-country model (North and South), where countries differ in their distributions of ability, and in which agents in different countries can join together in teams. We refer to this type of integration as globalization. Globalization leads to better matches for all southern workers but only for the best northern workers. As a result, we show that globalization increases wage inequality among nonmanagers in the South, but not necessarily in the North. We also study how globalization affects the size distribution of firms and the patterns of consumption and trade in the global economy. Copyright (c) President and Fellows of Harvard College and the Massachusetts Institute of Technology..

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File URL: http://www.mitpressjournals.org/doi/pdfplus/10.1162/qjec.2006.121.1.31
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Bibliographic Info

Article provided by MIT Press in its journal The Quarterly Journal of Economics.

Volume (Year): 121 (2006)
Issue (Month): 1 (02)
Pages: 31-77

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Handle: RePEc:tpr:qjecon:v:121:y:2006:i:1:p:31-77

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Web page: http://mitpress.mit.edu/journals/

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  1. Pol Antràs & Luis Garicano & Esteban Rossi-Hansberg, 2005. "Offshoring in a Knowledge Economy," NBER Working Papers 11094, National Bureau of Economic Research, Inc.
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  27. Luis Garicano & Esteban Rossi-Hansberg, 2004. "Inequality and the Organization of Knowledge," American Economic Review, American Economic Association, vol. 94(2), pages 197-202, May.
  28. Pol Antras & Elhanan Helpman, 2004. "Global Sourcing," Journal of Political Economy, University of Chicago Press, vol. 112(3), pages 552-580, June.
  29. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-42, June.
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