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Offshoring, globalization, and welfare

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  • Zhou, Yiming
  • Zeng, Dao-Zhi

Abstract

We investigate the issue of offshoring in a general-equilibrium model of two countries and one sector of increasing returns to scale. Our model uncovers that offshoring occurs and endogenously evolves in a bell-shaped pattern when trade costs decline, explaining some stylized facts in developed countries. Furthermore, this simple framework can be applied to examine the welfare issue. We find that a fall in offshoring costs benefits the high-wage country but hurts the low-wage country. On the other hand, the low-wage country benefits with trade liberalization. The impact of falling trade costs on the welfare of the high-wage country depends on the values of offshoring freeness.

Suggested Citation

  • Zhou, Yiming & Zeng, Dao-Zhi, 2015. "Offshoring, globalization, and welfare," The North American Journal of Economics and Finance, Elsevier, vol. 31(C), pages 75-93.
    • Handle: RePEc:eee:ecofin:v:31:y:2015:i:c:p:75-93
    DOI: 10.1016/j.najef.2014.10.004
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    More about this item

    Keywords

    Offshoring; Globalization; Welfare; Footloose capital;
    All these keywords.

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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