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Immigration and Outsourcing: A General‐Equilibrium Analysis

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  • Subhayu Bandyopadhyay
  • Howard J. Wall

Abstract

This paper analyzes immigration and outsourcing in a general‐equilibrium model of international factor mobility. In our model, legal immigration of skilled labor is controlled through a quota, while outsourcing is determined both by the firms in response to market conditions and through policy‐imposed barriers. A loosening of the immigration quota reduces outsourcing, enriches capitalists, leads to losses for native workers, and raises national income. If the nation targets an exogenously determined immigration level, the second‐best outsourcing tax can be either positive or negative. If in addition to the immigration target there is a wage target arising out of income distribution concerns, an outsourcing subsidy is required. We extend the analysis to consider illegal immigration of unskilled labor. A higher legal immigration quota will lead to more (less) illegal immigration if skilled and unskilled labor are complements (substitutes) in production.

Suggested Citation

  • Subhayu Bandyopadhyay & Howard J. Wall, 2010. "Immigration and Outsourcing: A General‐Equilibrium Analysis," Review of Development Economics, Wiley Blackwell, vol. 14(3), pages 433-446, August.
    • Handle: RePEc:bla:rdevec:v:14:y:2010:i:3:p:433-446
    DOI: 10.1111/j.1467-9361.2010.00563.x
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    References listed on IDEAS

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    1. Antonio Spilimbergo & Gordon H. Hanson, 1999. "Illegal Immigration, Border Enforcement, and Relative Wages: Evidence from Apprehensions at the U.S.-Mexico Border," American Economic Review, American Economic Association, vol. 89(5), pages 1337-1357, December.
    2. Djajic, Slobodan, 1987. "Illegal aliens, unemployment and immigration policy," Journal of Development Economics, Elsevier, vol. 25(1), pages 235-249, February.
    3. Djajic, Slobodan, 1997. "Illegal Immigration and Resource Allocation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(1), pages 97-117, February.
    4. Ethier, Wilfred J, 1986. "Illegal Immigration: The Host-Country Problem," American Economic Review, American Economic Association, vol. 76(1), pages 56-71, March.
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    6. Jagdish Bhagwati & Arvind Panagariya, 2004. "The Muddles over Outsourcing," Journal of Economic Perspectives, American Economic Association, vol. 18(4), pages 93-114, Fall.
    7. Bond, Eric W. & Chen, Tain-Jy, 1987. "The welfare effects of illegal immigration," Journal of International Economics, Elsevier, vol. 23(3-4), pages 315-328, November.
    8. Gaytan-Fregoso, Helena & Lahiri, Sajal, 2000. "Foreign aid and illegal immigration," Journal of Development Economics, Elsevier, vol. 63(2), pages 515-527, December.
    9. Bandyopadhyay, Subhayu & Bandyopadhyay, Sudeshna Champati, 1998. "Illegal immigration: a supply side analysis," Journal of Development Economics, Elsevier, vol. 57(2), pages 343-360.
    10. Subhayu Bandyopadhyay, 2006. "Illegal Immigration and Second‐best Import Tariffs," Review of International Economics, Wiley Blackwell, vol. 14(1), pages 93-103, February.
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    Cited by:

    1. Joseph Pelzman, 2013. "“Womb for Rent”: International Service Trade Employing Assisted Reproduction Technologies (ARTs)," Review of International Economics, Wiley Blackwell, vol. 21(3), pages 387-400, August.
    2. Ravi Batra & Hamid Beladi, 2010. "A Simple Two‐Sector Model of Outsourcing," Review of Development Economics, Wiley Blackwell, vol. 14(1), pages 64-73, February.
    3. Hatzigeorgiou, Andreas & Karpaty, Patrik & Kneller, Richard & Lodefalk, Magnus, 2016. "Immigrant Employment and the Contract Enforcement Costs of Offshoring," Working Papers 2016:7, Örebro University, School of Business, revised 01 Feb 2022.
    4. Giorgio Barba Navaretti & Giuseppe Bertola & Alessandro Sembenelli, 2008. "Offshoring and Immigrant Employment: Firm-level Theory and Evidence," Development Working Papers 245, Centro Studi Luca d'Agliano, University of Milano.
    5. Hübler, Michael, 2007. "A simple model of outsourcing with Cournot competition," Kiel Working Papers 1320, Kiel Institute for the World Economy (IfW Kiel).
    6. Cosimo Beverelli & Gianluca Orefice & Nadia Rocha, 2016. "The Impact of Offshoring and Migration Policies on Migration Flows," Working Papers 2016-21, CEPII research center.
    7. Gianluca Orefice, 2014. "Offshoring, migrants and native workers: The optimal choice under asymmetric information," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 23(2), pages 179-201, March.
    8. Simontini Das & Ajitava Raychaudhuri & Saikat Sinha Roy, 2012. "Immigration Versus Outsourcing: A Developing Country¡¯S View," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 37(2), pages 109-138, June.

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    More about this item

    JEL classification:

    • F1 - International Economics - - Trade
    • F2 - International Economics - - International Factor Movements and International Business
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • J1 - Labor and Demographic Economics - - Demographic Economics
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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