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The export-magnification effect of offshoring

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  • Kleinert, Joern
  • Zorell, Nico
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    Abstract

    In this paper we provide a new explanation for the increase in world trade over the last two decades. We show analytically in a general equilibrium model with heterogeneous firms that a fall in variable offshoring costs boosts trade in differentiated final goods through an intra-industry reallocation of resources towards the more productive firms. That is what we call the export-magnification effect of offshoring. More specifically, lower barriers to offshoring reduce the average costs of inputs for offshoring firms and allow more firms to source cheap foreign intermediates, which improves firm-level price competitiveness. This, in turn, translates into higher export quantities of incumbent exporters (intensive margin) and the entry of new exporters (extensive margin). The increase in final goods trade comes on top of the boost to trade in intermediates. Hence the mechanism proposed in this paper is consistent with the fact that the share of intermediate goods in international trade has remained broadly stable over recent years. JEL Classification: F12, F15, F23

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    Bibliographic Info

    Paper provided by European Central Bank in its series Working Paper Series with number 1430.

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    Date of creation: Apr 2012
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    Handle: RePEc:ecb:ecbwps:20121430

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    Keywords: international trade; Multinational firms; Offshoring;

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    1. Gabor Békés & Carlo Altomonte, 2009. "Trade Complexity and Productivity," Working Papers 2009.62, Fondazione Eni Enrico Mattei.
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    12. Eiichi Tomiura, 2005. "Foreign Outsourcing, Exporting, and FDI: A Productivity Comparison at the Firm Level," Discussion Paper Series 168, Research Institute for Economics & Business Administration, Kobe University.
    13. Davide Castellani & Francesco Serti & Chiara Tomasi, 2008. "Firms in International Trade: Importers and Exporters Heterogeneity in the Italian Manufacturing Industry," LEM Papers Series 2008/04, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    14. David Hummels, 2007. "Transportation Costs and International Trade in the Second Era of Globalization," Journal of Economic Perspectives, American Economic Association, vol. 21(3), pages 131-154, Summer.
    15. Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001. "The nature and growth of vertical specialization in world trade," Journal of International Economics, Elsevier, vol. 54(1), pages 75-96, June.
    16. Kasahara, Hiroyuki & Lapham, Beverly, 2013. "Productivity and the decision to import and export: Theory and evidence," Journal of International Economics, Elsevier, vol. 89(2), pages 297-316.
    17. Timothy Dunne & J. Bradford Jensen & Mark J. Roberts, 2009. "Producer Dynamics: New Evidence from Micro Data," NBER Books, National Bureau of Economic Research, Inc, number dunn05-1, May.
    18. Ca' Zorzi, Michele & Schnatz, Bernd, 2007. "Explaining and forecasting euro area exports: which competitiveness indicator performs best?," Working Paper Series 0833, European Central Bank.
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