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Trading Tasks: A Simple Theory of Offshoring

Author

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  • Gene M. Grossman
  • Esteban Rossi-Hansberg

Abstract

We propose a theory of the global production process that focuses on tradeable 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. (JEL F11, F16)

Suggested Citation

  • Gene M. Grossman & Esteban Rossi-Hansberg, 2008. "Trading Tasks: A Simple Theory of Offshoring," American Economic Review, American Economic Association, vol. 98(5), pages 1978-1997, December.
    • Handle: RePEc:aea:aecrev:v:98:y:2008:i:5:p:1978-97
    DOI: 10.1257/aer.98.5.1978
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    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • M11 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Production Management

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