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Outsourcing and the Heckscher–Ohlin Model

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  • Ravi Batra
  • Hamid Beladi

Abstract

The purpose of this paper is to incorporate the currently mushrooming phenomenon of outsourcing into the standard two‐sector, two‐factor Heckscher–Ohlin model of international trade. We first show how outsourcing modifies a firm's production function, and then demonstrate that outsourcing generally raises the return to capital and lowers the real wage, although the nation's GDP rises in proportion to the value‐added in the outsourcing industry. Furthermore, the output of the outsourcing sector may actually fall even though its unit cost goes down; the output of the other sector then rises. By contrast, employment in the outsourcing sector may actually rise.

Suggested Citation

  • Ravi Batra & Hamid Beladi, 2010. "Outsourcing and the Heckscher–Ohlin Model," Review of International Economics, Wiley Blackwell, vol. 18(2), pages 277-288, May.
    • Handle: RePEc:bla:reviec:v:18:y:2010:i:2:p:277-288
    DOI: 10.1111/j.1467-9396.2010.00857.x
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    References listed on IDEAS

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    1. 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.
    2. Deardorff, Alan V., 2005. "A trade theorist's take on skilled-labor outsourcing," International Review of Economics & Finance, Elsevier, vol. 14(3), pages 259-271.
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    Cited by:

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    2. Choi, E. Kwan & Choi, Jai-Young, 2013. "Financial advantage, outsourcing and FDI under wage uncertainty," The North American Journal of Economics and Finance, Elsevier, vol. 24(C), pages 260-267.
    3. Anwar, Sajid & Sun, Sizhong & Valadkhani, Abbas, 2013. "International outsourcing of skill intensive tasks and wage inequality," Economic Modelling, Elsevier, vol. 31(C), pages 590-597.
    4. Anwar, Sajid, 2013. "Outsourcing and the skilled–unskilled wage gap," Economics Letters, Elsevier, vol. 118(2), pages 347-350.
    5. Pi, Jiancai & Zhou, Yu, 2013. "Institutional quality and skilled–unskilled wage inequality," Economic Modelling, Elsevier, vol. 35(C), pages 356-363.
    6. Jai-Young Choi & Hamid Beladi, 2014. "Internal and external gains from international outsourcing," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 23(2), pages 299-314, March.
    7. Dhamija, Nidhi, 2019. "Trade Liberalization and Unemployment in India: A State Level Analysis," MPRA Paper 95001, University Library of Munich, Germany.
    8. Choi, Jai-Young, 2016. "International outsourcing, terms of trade and non-immiserization," International Review of Economics & Finance, Elsevier, vol. 43(C), pages 222-233.
    9. Choi, Jai-Young & Yu, Eden S. H., 2018. "International Outsourcing, Environmental Costs, and Welfare," ADBI Working Papers 848, Asian Development Bank Institute.

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