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How Remote is the Offshoring Threat?

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Author Info
Keith Head
Thierry Mayer
John Ries

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Abstract

Advances in communication technology make it possible for workers in India to supply business services to head offices located anywhere. This has the potential to put high-wage workers in direct competition with much lower paid Indian workers. Service trade, however, like goods trade, is subject to strong distance effects, implying that the remote supply of services remains limited. We investigate this proposition by deriving a gravity-like equation for service trade and estimating it for a large sample of countries and different categories of service trade. We find that distance costs are high but are declining over time. Our estimates suggest that delivery costs create a significant advantage for local workers relative to competing workers in distant countries.

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Paper provided by CEPII research center in its series Working Papers with number 2007-18.

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Date of creation: Nov 2007
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Handle: RePEc:cii:cepidt:2007-18

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Related research
Keywords: Services; distance; gravity; trade; international trade models and databases; gravity model;

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Find related papers by JEL classification:
F10 - International Economics - - Trade - - - General
F14 - International Economics - - Trade - - - Country and Industry Studies of Trade
F15 - International Economics - - Trade - - - Economic Integration
F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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References listed on IDEAS
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  1. Stein, Ernesto & Daude, Christian, 2007. "Longitude matters: Time zones and the location of foreign direct investment," Journal of International Economics, Elsevier, vol. 71(1), pages 96-112, March. [Downloadable!] (restricted)
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    Other versions:
  3. Paul A. Samuelson, 2004. "Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization," Journal of Economic Perspectives, American Economic Association, vol. 18(3), pages 135-146, Summer. [Downloadable!] (restricted)
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    Other versions:
  5. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June. [Downloadable!] (restricted)
  6. Head, Keith & Ries, John, 2008. "FDI as an outcome of the market for corporate control: Theory and evidence," Journal of International Economics, Elsevier, vol. 74(1), pages 2-20, January. [Downloadable!] (restricted)
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  8. Jan K. Brueckner, 2003. "International Airfares in the Age of Alliances: The Effects of Codesharing and Antitrust Immunity," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 105-118, 08. [Downloadable!] (restricted)
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  16. J. M. C. Santos Silva & Silvana Tenreyro, 2006. "The Log of Gravity," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 641-658, 09. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Baldwin, John R. & Gu, Wulong, 2008. "Impartition et délocalisation au Canada ," Série de documents de recherche sur l'analyse économique (AE) 2008055f, Statistics Canada, Direction des études analytiques. [Downloadable!]
  2. Holger Breinlich & Chiara Criscuolo, 2008. "Service Traders in the UK," CEP Discussion Papers dp0901, Centre for Economic Performance, LSE. [Downloadable!]
  3. Matthieu Bussière & Arnaud Mehl, 2008. "China's and India's roles in global trade and finance - twin titans for the new millennium?," Occasional Paper Series 80, European Central Bank. [Downloadable!]
  4. Baldwin, John R. & Gu, Wulong, 2008. "Outsourcing and Offshoring in Canada," Economic Analysis (EA) Research Paper Series 2008055e, Statistics Canada, Analytical Studies Branch. [Downloadable!]
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