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Globalization and the Open Economy

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Author Info
Sven W. Arndt () (Lowe Institute of Political Economy, Claremont McKenna College)

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Abstract

Does offshore sourcing by domestic producers destroy jobs? Does it lower wages? To a growing number of observers the answer to both questions appears to be affirmative. This paper examines the issue in the context of a conventional trade framework that has been amended to allow production to be disaggregated into its constituent activities. Offshore sourcing generally increases employment in an industry by creating more jobs in the remaining activities than are lost to sub-contracting. Offshore sourcing by labor-intensive importables industries raises both employment and wages. In general, offshore sourcing enables producers to strengthen their competitive positions against foreign rivals in the markets for end-products. When offshore sourcing involves simultaneous intra-product specialization in a labor-scarce importing country (like the United States) and a labor-abundant exporting country (like Mexico), employment and wages rise in both.

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File URL: http://lowe.claremontmckenna.edu/pdf/WP97-01.pdf
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Publisher Info
Paper provided by Lowe Institute of Political Economy in its series Working Papers with number 9701.

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Length: 9 pages
Date of creation: 1997
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Publication status: Published in North American Journal of Economics and Finance, v.8 no.1 1997, pages 71-79.
Handle: RePEc:loi:wpaper:9701

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Related research
Keywords: fragmentation globalization regionalism trade policy

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Find related papers by JEL classification:
D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
F11 - International Economics - - Trade - - - Neoclassical Models of Trade

References listed on IDEAS
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  1. Paul Krugman, 1995. "Technology, Trade, and Factor Prices," NBER Working Papers 5355, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Krueger, Anne O, 1974. "The Political Economy of the Rent-Seeking Society," American Economic Review, American Economic Association, vol. 64(3), pages 291-303, June. [Downloadable!] (restricted)
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