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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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    Cited by:

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    4. 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.
    5. Jai-Young Choi & Eden S. H. Yu, 2018. "International Outsourcing, Environmental Costs, and Welfare," ADBI Working Papers 848, Asian Development Bank Institute.
    6. Bataka, Hodabalo, 2024. "Global value chains participation and gender inequalities in Sub-Saharan Africa: Importance of women education," International Economics, Elsevier, vol. 178(C).
    7. Anwar, Sajid, 2013. "Outsourcing and the skilled–unskilled wage gap," Economics Letters, Elsevier, vol. 118(2), pages 347-350.
    8. Dhamija, Nidhi, 2019. "Trade Liberalization and Unemployment in India: A State Level Analysis," MPRA Paper 95001, University Library of Munich, Germany.
    9. Barua, Alokesh & Pant, Manoj, 2014. "Trade and wage inequality: A specific factor model with intermediate goods," International Review of Economics & Finance, Elsevier, vol. 33(C), pages 172-185.
    10. Choi, Jai-Young, 2016. "International outsourcing, terms of trade and non-immiserization," International Review of Economics & Finance, Elsevier, vol. 43(C), pages 222-233.

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