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The export-magnification effect of offshoring

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  • Kleinert, Jörn
  • Zorell, Nico

Abstract

In this paper we argue that the surge in world trade over the two decades preceding the global downturn of 2008-09 can be partly explained by the export-magnification effect of offshoring. In a general equilibrium model with heterogeneous firms we show analytically that a fall in variable offshoring costs boosts trade in differentiated final goods through an intra-industry reallocation of resources towards the more productive firms. More specifically, lower barriers to offshoring reduce the input costs of incumbent offshoring firms and allow more firms to source cheap foreign intermediates, which improves firm-level price competitiveness. This, in turn, translates into higher export quantities of incumbent exporters (intensive margin) and entry of new exporters (extensive margin), thereby fostering trade in final goods.

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  • Kleinert, Jörn & Zorell, Nico, 2010. "The export-magnification effect of offshoring," Tübinger Diskussionsbeiträge 330, University of Tübingen, School of Business and Economics.
    • Handle: RePEc:zbw:tuedps:330
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    Cited by:

    1. Filippo di Mauro & Joseph W. Gruber & Bernd Schnatz & Nico Zorell, 2011. "Where are global and U.S. trade heading in the aftermath of the trade collapse: issues and alternative scenarios," International Finance Discussion Papers 1017, Board of Governors of the Federal Reserve System (U.S.).
    2. Lewis, John & De Schryder, Selien, 2015. "Export dynamics since the Great Trade Collapse: a cross-country analysis," Bank of England working papers 535, Bank of England.

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    More about this item

    Keywords

    Offshoring; trade; multinational firms;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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