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A Simple Model of Offshore Outsourcing,Technology Upgrading and Welfare

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  • Jae-won Jung

    () (THEMA, Université de Cergy-Pontoise.)

  • Jean Mercenier

    () (ERMES, Université Panthéon-Assas (Paris 2))

Abstract

We adapt Yeaple's (2005) heterogeneous agents framework to model firms in the North as making explicit offshore outsourcing decisions to cheap-labor economies. Globalization results from a lowering of the set-up costs incurred when engaging in offshore activities. We highlight how firms'technology transformations due to global- ization will induce skill upgrading in the North, increase aggregate productivity, av- erage wages and therefore total welfare at the cost of increased wage inequalities. We analytically derive mild conditions under which all consumers-including lower-skilled workers-will nevertheless gain from the surge of offshore outsourcing. A parameter- ized version of the model roughly calibrated on U.S. data is then numerically explored and confirms our positive welfare predictions.

Suggested Citation

  • Jae-won Jung & Jean Mercenier, 2008. "A Simple Model of Offshore Outsourcing,Technology Upgrading and Welfare," THEMA Working Papers 2008-21, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  • Handle: RePEc:ema:worpap:2008-21
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    References listed on IDEAS

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    Cited by:

    1. Jaewon Jung & Jean Mercenier, 2010. "Routinization-Biased Technical Change, Globalization and Labor Market Polarization: Does Theory Fit the Facts?," Working Papers 13/2010, University of Verona, Department of Economics.
    2. Philipp Harms & Jaewon Jung & Oliver Lorz, 2014. "Offshoring and Sequential Production Chains: A General-Equilibrium Analysis," MAGKS Papers on Economics 201402, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    3. repec:eee:inecon:v:106:y:2017:i:c:p:165-183 is not listed on IDEAS
    4. Emily Blanchard & Gerald Willmann, 2013. "Trade, Education, and the Shrinking Middle Class," CESifo Working Paper Series 4141, CESifo Group Munich.
    5. Blanchard, Emily & Willmann, Gerald, 2016. "Trade, education, and the shrinking middle class," Journal of International Economics, Elsevier, vol. 99(C), pages 263-278.
    6. Blanchard, Emily & Willmann, Gerald, 2013. "Trade, education, and the shrinking middle class," Kiel Working Papers 1831, Kiel Institute for the World Economy (IfW).

    More about this item

    Keywords

    Offshore outsourcing; Globalization; Skill upgrading; Technology upgrading; Firm heterogeneity;

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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