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Trading Tasks: A Simple Theory of Offshoring

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  • Gene M. Grossman
  • Esteban Rossi-Hansberg

Abstract

For centuries, most international trade involved an exchange of complete goods. But, with recent improvements in transportation and communications technology, it increasingly entails different countries adding value to global supply chains, or what might be called "trade in tasks." We propose a new conceptualization of the global production process that focuses on tradable tasks and use it to study how falling costs of offshoring affect factor prices in the source country. We identify a productivity effect of task trade that benefits the factor whose tasks are more easily moved offshore. In the light of this effect, reductions in the cost of trading tasks can generate shared gains for all domestic factors, in contrast to the distributional conflict that typically results from reductions in the cost of trading goods.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12721.

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Date of creation: Dec 2006
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Publication status: published as Gene M. Grossman & Esteban Rossi-Hansberg, 2008. "Trading Tasks: A Simple Theory of Offshoring," American Economic Review, American Economic Association, vol. 98(5), pages 1978-97, December.
Handle: RePEc:nbr:nberwo:12721

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  1. Gordon H. Hanson & Raymond J. Mataloni & Matthew J. Slaughter, 2001. "Expansion Strategies of U.S. Multinational Firms," BEA Papers, Bureau of Economic Analysis 0012, Bureau of Economic Analysis.
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  8. Antras, Pol, 2003. "Firms, Contracts, and Trade Structure," Scholarly Articles 3196328, Harvard University Department of Economics.
  9. Gene M. Grossman & Elhanan Helpman, 2002. "Outsourcing in a Global Economy," NBER Working Papers 8728, National Bureau of Economic Research, Inc.
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