The Elasticity of Substitution and the Sector Bias of International Outsourcing: Solving the Puzzle
AbstractConsidering the sector bias of International Outsourcing within a 2x2 framework, four different scenarios appear. Each industry can either relocate its high or its low skill intensive production fragment. Traditionally, depending on the superiority of a wage vs. an outsourcing-effect, general equilibrium effects of two scenarios are assumed to be ambiguous. Applying a formal duality approach and a calibration exercise for the German economy, this contribution shows that a focus on the elasticity of substitution can solve the puzzle. With the elasticity exceeding a critical value, unambiguous results in all four scenarios appear, supporting the sector bias of International Outsourcing.Finally, the introduction of distributional constraints into the allocative decisions leads to a decisive worsening in the supply of the public good.
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Bibliographic InfoPaper provided by Helmut Schmidt University, Hamburg in its series Working Paper with number 88/2009.
Length: 26 pages
Date of creation: 29 Jan 2009
Date of revision:
International Outsourcing; Sector Bias; Elasticity of Substitution;
Find related papers by JEL classification:
- E25 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
- F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-01-31 (All new papers)
- NEP-MAC-2009-01-31 (Macroeconomics)
- NEP-OPM-2009-01-31 (Open Economy Macroeconomic)
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