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Offshoring, Reshoring, Unemployment, And Wage Dynamics In A Two-Country Evolutionary Model

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  • Radi, Davide
  • Lamantia, Fabio
  • Italo Bischi, Gian

Abstract

In this paper, the location patterns of Multinational Enterprises are modeled by an evolutionary two-country model in which producing in a developed economy offers strong cost-reducing externalities of within-country spillovers and opting for a developing economy entails cheap labor but also extra operational costs due to the undersupply of public goods. The offshoring process, that is, manufacturing activity outsourced in the developing economy, increases the bargaining power of its workers and, with it, its labor cost. The investigation underlines that an increasing labor-productivity remuneration in the developing economy may spark a reshoring process that depends on the agglomeration and endowment drivers characterizing an industry. The reshoring process can be narrowed by a flexible labor remuneration scheme, with wages indexed to the domestic concentration of manufacturing activity. The presence of sub-optimal location patterns points out the existence of a trade-off between stability and efficiency, which underlines that policy measures designed to make a country a more efficient location are neither sufficient nor necessary for preventing offshoring or ensuring reshoring.

Suggested Citation

  • Radi, Davide & Lamantia, Fabio & Italo Bischi, Gian, 2021. "Offshoring, Reshoring, Unemployment, And Wage Dynamics In A Two-Country Evolutionary Model," Macroeconomic Dynamics, Cambridge University Press, vol. 25(3), pages 705-732, April.
  • Handle: RePEc:cup:macdyn:v:25:y:2021:i:3:p:705-732_7
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    References listed on IDEAS

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    1. Steven Brakman & Harry Garretsen (ed.), 2008. "Foreign Direct Investment and the Multinational Enterprise," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262026457, December.
    2. James D. Adams & Adam B. Jaffe, 1996. "Bounding the Effects of R&D: An Investigation Using Matched Establishment-Firm Data," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 700-721, Winter.
    3. Braun, Sebastian & Scheffel, Juliane, 2007. "Does international outsourcing depress union wages?," SFB 649 Discussion Papers 2007-033, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    4. repec:hum:wpaper:sfb649dp2007-033 is not listed on IDEAS
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    Cited by:

    1. Andrea Bacchiocchi & Sebastian Ille & Germana Giombini, 2024. "The effects of a green monetary policy on firms financing cost," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 19(4), pages 727-757, October.
    2. Andrea Bacchiocchi & Gian Italo Bischi, 2022. "An Evolutionary Game to Model Offshoring and Reshoring of Production Between Developed and Developing Countries," International Journal of Applied Behavioral Economics (IJABE), IGI Global, vol. 11(1), pages 1-29, January.
    3. Bacchiocchi, Andrea & Bellocchi, Alessandro & Coveri, Andrea, 2024. "Firms’ location decisions, supply chain disruptions and government subsidies: A dynamic game," Economic Analysis and Policy, Elsevier, vol. 84(C), pages 1490-1508.
    4. Gian Italo Bischi & Lorenzo Cerboni Baiardi & Fabio Lamantia & Davide Radi, 2024. "Nonlinear dynamics and game-theoretic modeling in economics and finance," Annals of Operations Research, Springer, vol. 337(3), pages 731-737, June.

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