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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. Pol Antras & Luis Garicano & Esteban Rossi-Hansberg, 2005. "Offshoring in a Knowledge Economy," Harvard Institute of Economic Research Working Papers 2067, Harvard - Institute of Economic Research.
  2. Gene M. Grossman & Elhanan Helpman, 2002. "Managerial Incentives and the International Organization of Production," Working Papers 147, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics..
  3. 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.
  4. Dalia Marin & Thierry Verdier, 2003. "Globalization and the empowerment of talent," DELTA Working Papers 2003-32, DELTA (Ecole normale supérieure).
  5. Gene M. Grossman & Elhanan Helpman, 2002. "Outsourcing in a Global Economy?," Harvard Institute of Economic Research Working Papers 1966, Harvard - Institute of Economic Research.
  6. Dalia Marin & Thierry Verdier, 2003. "Globalization and the New Enterprise," Journal of the European Economic Association, MIT Press, MIT Press, vol. 1(2-3), pages 337-344, 04/05.
  7. Jose Campa & Linda S. Goldberg, 1997. "The Evolving External Orientation of Manufacturing Industries: Evidence from Four Countries," NBER Working Papers 5919, National Bureau of Economic Research, Inc.
  8. David H. Autor & Frank Levy & Richard J. Murnane, 2001. "The Skill Content of Recent Technological Change: An Empirical Exploration," NBER Working Papers 8337, National Bureau of Economic Research, Inc.
  9. Antràs, Pol & Helpman, Elhanan, 2004. "Global Sourcing," CEPR Discussion Papers 4170, C.E.P.R. Discussion Papers.
  10. Gordon H. Hanson & Raymond J. Mataloni & Matthew J. Slaughter, 2005. "Vertical Production Networks in Multinational Firms," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 664-678, November.
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  13. Deardorff, A.V., 1998. "Fragmentation Across Cones," Working Papers, Research Seminar in International Economics, University of Michigan 427, Research Seminar in International Economics, University of Michigan.
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  15. Krugman, Paul R., 2000. "Technology, trade and factor prices," Journal of International Economics, Elsevier, vol. 50(1), pages 51-71, February.
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  17. Trefler, Daniel, 1995. "The Case of the Missing Trade and Other Mysteries," American Economic Review, American Economic Association, vol. 85(5), pages 1029-46, December.
  18. David 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, Federal Reserve Bank of New York, issue Jun, pages 79-99.
  19. Edward E. Leamer, 1996. "What's the Use of Factor Contents?," NBER Working Papers 5448, National Bureau of Economic Research, Inc.
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  21. Gordon H. Hanson & Raymond J. Mataloni, Jr. & Matthew J. Slaughter, 2001. "Expansion Strategies of U.S. Multinational Firms," NBER Working Papers 8433, National Bureau of Economic Research, Inc.
  22. Feenstra, R.C. & Hanson, G.H., 1995. "Foreign Investment, Outsourcing and Relative Wages," Department of Economics 95-14, California Davis - Department of Economics.
  23. Kei-Mu Yi, 2000. "Can vertical specialization explain the growth of world trade?," Staff Reports 96, Federal Reserve Bank of New York.
  24. Wilhelm Kohler, 2004. "Aspects of International Fragmentation," Review of International Economics, Wiley Blackwell, vol. 12(5), pages 793-816, November.
  25. Gene M. Grossman & Elhanan Helpman, 2002. "Integration Versus Outsourcing In Industry Equilibrium," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 117(1), pages 85-120, February.
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