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Offshoring: general equilibrium effects on wages, production and trade

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  • Baldwin, Richard E.
  • Robert-Nicoud, Frédéric

Abstract

A simple model of offshoring is used to integrate the complex gallery of results that exist in the theoretical offshoring/fragmentation literature. The paper depicts offshoring as ‘shadow migration’ and shows that this allows straightforward derivation of the general equilibrium effects on prices, wages, production and trade (necessary and sufficient conditions are provided). We show that offshoring requires modification of the four HO theorems, so econometricians who ignore offshoring might reject the HO 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.

Suggested Citation

  • Baldwin, Richard E. & Robert-Nicoud, Frédéric, 2007. "Offshoring: general equilibrium effects on wages, production and trade," LSE Research Online Documents on Economics 19720, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:19720
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    References listed on IDEAS

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    More about this item

    Keywords

    Offshoring; Shadow migration; Inter-industry trade; Intra-industry trade; Trade theorems;

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • 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
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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