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Offshoring: General Equilibrium Effects on Wages, Production and Trade

  • Baldwin, Richard
  • Robert-Nicoud, Frédéric

A simple model of offshoring, which depicts offshoring as ‘shadow migration,’ permits straightforward derivation of necessary and sufficient conditions for the effects on wages, prices, production and trade. We show that offshoring requires modification of the four classic international trade theorems, so econometricians who ignore offshoring might reject the Heckscher-Ohlin theorem when a properly specified version held in the data. We also show that offshoring is an independent source of comparative advantage and can lead to intra-industry trade in a Walrasian setting. The model is extended to allow for two-way offshoring between similar nations, and to allow for monopolistic competition.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6218.

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Date of creation: Apr 2007
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Handle: RePEc:cpr:ceprdp:6218
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  1. Peter K. Schott, 2004. "Across-product Versus Within-product Specialization in International Trade," The Quarterly Journal of Economics, MIT Press, vol. 119(2), pages 646-677, May.
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  12. Mary Amiti & Shang-Jin Wei, 2005. "Fear of service outsourcing: is it justified?," Economic Policy, CEPR;CES;MSH, vol. 20(42), pages 308-347, 04.
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  14. Venables, Anthony J., 1999. "Fragmentation and multinational production," European Economic Review, Elsevier, vol. 43(4-6), pages 935-945, April.
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  17. James Markusen, 2005. "Modeling the Offshoring of White-Collar Services: From Comparative Advantage to the New Theories of Trade and FDI," NBER Working Papers 11827, National Bureau of Economic Research, Inc.
  18. Batra, Raveendra N & Casas, Francisco R, 1973. "Intermediate Products and the Pure Theory of International Trade: A Neo-Heckscher-Ohlin Framework," American Economic Review, American Economic Association, vol. 63(3), pages 297-311, June.
  19. Ronald W. Jones & Ronald Findlay, 2001. "Input Trade and the Location of Production," American Economic Review, American Economic Association, vol. 91(2), pages 29-33, May.
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  21. Findlay, Ronald & Jones, Ronald, 2000. "Factor bias and technical progress," Economics Letters, Elsevier, vol. 68(3), pages 303-308, September.
  22. Francois, Joseph F, 1990. "Producer Services, Scale, and the Division of Labor," Oxford Economic Papers, Oxford University Press, vol. 42(4), pages 715-29, October.
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  25. Ng, Francis & Yeats, Alexander, 2003. "Major trade trends in East Asia : what are their implications for regional cooperation and growth," Policy Research Working Paper Series 3084, The World Bank.
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