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A Simple Theory of Offshoring and Reshoring

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  • Chu, Angus C.
  • Cozzi, Guido
  • Furukawa, Yuichi

Abstract

In this study, we predict a pattern of offshoring and reshoring over the course of economic development. We achieve this, by extending Grossman and Rossi-Hansberg's (2008) model of offshoring in a simple way by assuming that offshoring requires both workers and capital in the offshored country. As a consequence, the accumulation of capital in the offshored country has two opposing effects on offshoring. On the one hand, it increases the wage rate of workers rendering offshoring less attractive. On the other hand, it decreases the rental price of capital rendering offshoring more attractive. Putting these two effects together, we analytically generate the inverted-U pattern of offshoring recently observed in China.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 44557.

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Date of creation: Jan 2013
Date of revision: Feb 2013
Handle: RePEc:pra:mprapa:44557

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Keywords: trade; offshoring; economic development;

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  1. Grossman, Gene & Helpman, Elhanan, 2003. "Managerial Incentives and the International Organization of Production," CEPR Discussion Papers 3737, C.E.P.R. Discussion Papers.
  2. 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.
  3. Xing, Yuqing, 2012. "Processing trade, exchange rates and China's bilateral trade balances," Journal of Asian Economics, Elsevier, vol. 23(5), pages 540-547.
  4. Pol Antràs, 2003. "Firms, Contracts, and Trade Structure," NBER Working Papers 9740, National Bureau of Economic Research, Inc.
  5. Grossman, G.M. & Helpman, E., 2002. "Outsourcing in a Global Economy," Papers 218, Princeton, Woodrow Wilson School - Public and International Affairs.
  6. John McLaren, 2000. ""Globalization" and Vertical Structure," American Economic Review, American Economic Association, vol. 90(5), pages 1239-1254, December.
  7. Chong-En Bai & Chang-Tai Hsieh & Yingyi Qian, 2006. "The Return to Capital in China," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 37(2), pages 61-102.
  8. Rossi-Hansberg, Esteban & Garicano, Luis & Antras, Pol, 2006. "Offshoring in a Knowledge Economy," Scholarly Articles 4784031, Harvard University Department of Economics.
  9. Pol Antras & Elhanan Helpman, 2003. "Global Sourcing," Harvard Institute of Economic Research Working Papers 2005, Harvard - Institute of Economic Research.
  10. Helpman, Elhanan & Antras, Pol, 2004. "Global Sourcing," Scholarly Articles 4784029, Harvard University Department of Economics.
  11. 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.
  12. Gene M. Grossman & Elhanan Helpman, 2002. "Integration Versus Outsourcing In Industry Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 85-120, February.
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