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Offshoring in a Ricardian World

  • Andrés Rodríguez-Clare

This paper proposes a Ricardian model to understand the short-run and long-run aggregate effects of increased fragmentation and offshoring on rich and poor countries. The short-run analysis shows that, when offshoring is sufficiently high, further increases in offshoring benefit the poor country and hurt the rich country. But these effects may be reversed in the long run as countries adjust their research efforts in response to increased offshoring. In particular, in the long run, the rich country always gains from increased offshoring, whereas poor countries see their static gains partially eroded by a decline in their research efforts. (JEL F12, F23, L24, M16)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/mac.2.2.227
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Article provided by American Economic Association in its journal American Economic Journal: Macroeconomics.

Volume (Year): 2 (2010)
Issue (Month): 2 (April)
Pages: 227-58

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Handle: RePEc:aea:aejmac:v:2:y:2010:i:2:p:227-58
Note: DOI: 10.1257/mac.2.2.227
Contact details of provider: Web page: https://www.aeaweb.org/aej-macro
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  1. Feenstra, R.C. & Hanson, G.H., 1995. "Foreign Investment, Outsourcing and Relative Wages," Papers 95-14, California Davis - Institute of Governmental Affairs.
  2. Richard Baldwin & Frédéric Robert-Nicoud, 2008. "Offshoring: General Equilibrium Effects on Wages, Production and Trade," Development Working Papers 250, Centro Studi Luca d\'Agliano, University of Milano.
  3. N. Gregory Mankiw & Phillip Swagel, 2006. "The Politics and Economics of Offshore Outsourcing," NBER Working Papers 12398, National Bureau of Economic Research, Inc.
  4. Eaton, Jonathan & Kortum, Samuel, 2001. "Technology, trade, and growth: A unified framework," European Economic Review, Elsevier, vol. 45(4-6), pages 742-755, May.
  5. Martin Neil Baily & Robert Z. Lawrence, 2004. "What Happened to the Great U.S. Job Machine? The Role of Trade and Electronic Offshoring," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 35(2), pages 211-284.
  6. Alvarez, Fernando & Lucas, Robert Jr., 2007. "General equilibrium analysis of the Eaton-Kortum model of international trade," Journal of Monetary Economics, Elsevier, vol. 54(6), pages 1726-1768, September.
  7. Paul A. Samuelson, 2004. "Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization," Journal of Economic Perspectives, American Economic Association, vol. 18(3), pages 135-146, Summer.
  8. Deardorff, A.V., 1998. "Fragmentation in Simple Trade Models," Papers 98-11, Michigan - Center for Research on Economic & Social Theory.
  9. Edward E. Leamer, 2007. "A Flat World, a Level Playing Field, a Small World After All, or None of the Above? A Review of Thomas L Friedman's The World is Flat," Journal of Economic Literature, American Economic Association, vol. 45(1), pages 83-126, March.
  10. repec:fth:bosecd:110 is not listed on IDEAS
  11. Kei-Mu Yi, 2003. "Can Vertical Specialization Explain the Growth of World Trade?," Journal of Political Economy, University of Chicago Press, vol. 111(1), pages 52-102, February.
  12. 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.
  13. Alan V. Deardorff, 2004. "A Trade Theorist’s Take on Skilled-Labor Outsourcing," Working Papers 519, Research Seminar in International Economics, University of Michigan.
  14. Donald R. Davis & David E. Weinstein, 2002. "Technological Superiority and the Losses from Migration," NBER Working Papers 8971, National Bureau of Economic Research, Inc.
  15. David Hummels & Peter J. Klenow, 2005. "The Variety and Quality of a Nation's Exports," American Economic Review, American Economic Association, vol. 95(3), pages 704-723, June.
  16. Glass, Amy Jocelyn & Saggi, Kamal, 2001. "Innovation and wage effects of international outsourcing," European Economic Review, Elsevier, vol. 45(1), pages 67-86, January.
  17. Naghavi, Alireza & Ottaviano, Gianmarco, 2006. "Offshoring and Product Innovation," CEPR Discussion Papers 6008, C.E.P.R. Discussion Papers.
  18. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
  19. Gene M. Grossman & Esteban Rossi-Hansberg, 2006. "The rise of offshoring: it's not wine for cloth anymore," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 59-102.
  20. Robert C. Feenstra & Gordon H. Hanson, 1999. "The Impact Of Outsourcing And High-Technology Capital On Wages: Estimates For The United States, 1979-1990," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 907-940, August.
  21. Jones, Ronald W., 2005. "Immigration vs. outsourcing: Effects on labor markets," International Review of Economics & Finance, Elsevier, vol. 14(2), pages 105-114.
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