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The Economics Of Offshoring

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  • WINSTON W. CHANG

    (Department of Economics, SUNY at Buffalo, Buffalo, NY 14260, USA)

Abstract

This paper examines various economic issues on offshoring (international outsourcing). It begins with a discussion of the factors that determine a firm's decision to offshore and illustrates, with simple models, the cost saving of offshoring certain stages of production and the advantages of specializing in some input production and engaging in input trade. The paper then examines the recent trend in offshoring with special emphases on the rise of IT offshoring and the characteristics of firms engaging in offshoring and exporting. The effect of offshoring and national welfare is then discussed in light of numerous results in recent empirical studies. Finally, after examining the current US programs to aid the displaced workers, the paper discusses various short-run and long-run policy proposals to alleviate the negative impacts of offshoring.

Suggested Citation

  • Winston W. Chang, 2012. "The Economics Of Offshoring," Global Journal of Economics (GJE), World Scientific Publishing Co. Pte. Ltd., vol. 1(02), pages 1-26.
    • Handle: RePEc:wsi:gjexxx:v:01:y:2012:i:02:n:s2251361212500097
    DOI: 10.1142/S2251361212500097
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    References listed on IDEAS

    as
    1. J. Bradford Jensen & Lori G. Kletzer, 2008. ""Fear" and Offshoring: The Scope and Potential Impact of Imports and Exports of Services," Policy Briefs PB08-1, Peterson Institute for International Economics.
    2. David L. 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, vol. 4(Jun), pages 79-99.
    3. Phelps, Edmund S, 1994. "Low-Wage Employment Subsidies versus the Welfare State," American Economic Review, American Economic Association, vol. 84(2), pages 54-58, May.
    4. J. Bradford Jensen & Lori G. Kletzer, 2005. "Tradable Services: Understanding the Scope and Impact of Services Outsourcing," Working Paper Series WP05-9, Peterson Institute for International Economics.
    5. Lori G. Kletzer & Robert E. Litan, 2001. "A Prescription to Relieve Worker Anxiety," Policy Briefs PB01-02, Peterson Institute for International Economics.
    6. Catherine L. Mann, 2003. "Globalization of IT Services and White Collar Jobs: The Next Wave of Productivity Growth," Policy Briefs PB03-11, Peterson Institute for International Economics.
    7. Lori G. Kletzer, 2001. "Job Loss from Imports: Measuring the Costs," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 110, October.
    8. Lael Brainard & Robert Litan, 2004. "Outsourcing, Offshoring - Service Offshoring: Bane or Boon and What to Do?," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 5(02), pages 3-7, October.
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    Cited by:

    1. Beissinger, Thomas & Chusseau, Nathalie & Hellier, Joël, 2015. "Offshoring and Labour Market Reforms: Modelling the German Experience," IZA Discussion Papers 8920, Institute of Labor Economics (IZA).
    2. Thomas Beissinger & Nathalie Chusseau & Joel Hellier, 2014. "Offshoring, employment, labour market reform and inequality: Modelling the German experience," Working Papers 330, ECINEQ, Society for the Study of Economic Inequality.
    3. Beissinger, Thomas & Chusseau, Nathalie & Hellier, Joël, 2016. "Offshoring and labour market reforms in Germany: Assessment and policy implications," Economic Modelling, Elsevier, vol. 53(C), pages 314-333.
    4. Morganti, Daniele & De Giovanni, Pietro, 2022. "Offshoring motivations driven by sustainability factors," Research in Transportation Economics, Elsevier, vol. 95(C).

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    More about this item

    Keywords

    Offshoring; outsourcing; fragmentation; gains from offshoring; input trade and specialization; IT offshoring; economic welfare; US policies and reform proposals; A10; D21; D22; D63; F16; J28;
    All these keywords.

    JEL classification:

    • A10 - General Economics and Teaching - - General Economics - - - General
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J28 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Safety; Job Satisfaction; Related Public Policy

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