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Offshoring in a Knowledge Economy

  • Rossi-Hansberg, Esteban
  • Garicano, Luis
  • Antras, Pol

How does the formation of cross-country teams affect the organization of work and the structure of wages? To study this question, we propose a theory of the assignment of heterogeneous agents into hierarchical teams, where less skilled agents specialize in production and more skilled agents specialize in problem solving. We first analyze the properties of the competitive equilibrium of the model in a closed economy, and show that the model has a unique and efficient solution. We then study the equilibrium of a two-country model (North and South), where countries differ in their distributions of ability, and in which agents in different countries can join together in teams. We refer to this type of integration as globalization. Globalization leads to better matches for all southern workers but only for the best northern workers. As a result, we show that globalization increases wage inequality among nonmanagers in the South, but not necessarily in the North. We also study how globalization affects the size distribution of firms and the patterns of consumption and trade in the global economy.

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File URL: http://dash.harvard.edu/bitstream/handle/1/3196323/antras_offshoring.pdf
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Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 3196323.

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Date of creation: 2006
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Publication status: Published in Quarterly Journal of Economics
Handle: RePEc:hrv:faseco:3196323
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Web page: http://www.economics.harvard.edu/

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  1. Pol Antràs & Luis Garicano & Esteban Rossi-Hansberg, 2006. "Offshoring in a Knowledge Economy," The Quarterly Journal of Economics, MIT Press, vol. 121(1), pages 31-77, 02.
  2. Antras, Pol & Helpman, Elhanan, 2004. "Global Sourcing," Scholarly Articles 3196327, Harvard University Department of Economics.
  3. Lipsey, Robert E. & Sjoholm, Fredrik, 2004. "Foreign direct investment, education and wages in Indonesian manufacturing," Journal of Development Economics, Elsevier, vol. 73(1), pages 415-422, February.
  4. Antras, Pol, 2003. "Firms, Contracts, and Trade Structure," Scholarly Articles 3196328, Harvard University Department of Economics.
  5. Kremer, M & Maskin, E, 1996. "Wage Inequality and Segregation by Skill," Working papers 96-23, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Stephen Yeaple & Volker Nocke, 2005. "An Assignment Theory of Foreign Direct Investment," 2005 Meeting Papers 146, Society for Economic Dynamics.
  7. Gene M. Grossman & Giovanni Maggi, 1998. "Diversity and Trade," NBER Working Papers 6741, National Bureau of Economic Research, Inc.
  8. Daron Acemoglu, 1999. "Patterns of Skill Premia," NBER Working Papers 7018, National Bureau of Economic Research, Inc.
  9. Feenstra, R.C. & Hanson, G.H., 1995. "Foreign Investment, Outsourcing and Relative Wages," Department of Economics 95-14, California Davis - Department of Economics.
  10. Pol Antras, 2004. "Incomplete Contracts and the Product Cycle," Econometric Society 2004 North American Summer Meetings 62, Econometric Society.
  11. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Scholarly Articles 3445092, Harvard University Department of Economics.
  12. repec:hrv:faseco:4784029 is not listed on IDEAS
  13. Robert C. Feenstra & Gordon H. Hanson, 1995. "Foreign Direct Investment and Relative Wages: Evidence from Mexico's Maquiladoras," NBER Working Papers 5122, National Bureau of Economic Research, Inc.
  14. Waldman, Michael, 1984. "Worker Allocation, Hierarchies and the Wage Distribution," Review of Economic Studies, Wiley Blackwell, vol. 51(1), pages 95-109, January.
  15. Elhanan Helpman & Gene M. Grossman, 2002. "Managerial Incentives and the International Organization of Production," NBER Working Papers 9403, National Bureau of Economic Research, Inc.
  16. Eric A. Verhoogen, 2008. "Trade, Quality Upgrading, and Wage Inequality in the Mexican Manufacturing Sector," The Quarterly Journal of Economics, MIT Press, vol. 123(2), pages 489-530, 05.
  17. Feenstra, Robert C & Hanson, Gordon H, 1996. "Globalization, Outsourcing, and Wage Inequality," American Economic Review, American Economic Association, vol. 86(2), pages 240-45, May.
  18. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
  19. Robert Feenstra & Gordon Hanson, 2001. "Global Production Sharing and Rising Inequality: A Survey of Trade and Wages," NBER Working Papers 8372, National Bureau of Economic Research, Inc.
  20. Luis Garicano & Esteban Rossi-Hansberg, 2004. "Inequality and the Organization of Knowledge," American Economic Review, American Economic Association, vol. 94(2), pages 197-202, May.
  21. Yeaple, Stephen & Helpman, Elhanan & Melitz, Marc, 2004. "Export versus FDI with Heterogeneous Firms," Scholarly Articles 3229098, Harvard University Department of Economics.
  22. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  23. Sattinger, Michael, 1993. "Assignment Models of the Distribution of Earnings," Journal of Economic Literature, American Economic Association, vol. 31(2), pages 831-80, June.
  24. Holmstrom, Bengt & Milgrom, Paul, 1994. "The Firm as an Incentive System," American Economic Review, American Economic Association, vol. 84(4), pages 972-91, September.
  25. Luis Garicano & Esteban Rossi-Hansberg, 2006. "Organization and Inequality in a Knowledge Economy," The Quarterly Journal of Economics, MIT Press, vol. 121(4), pages 1383-1435, November.
  26. Aitken, Brian & Harrison, Ann & Lipsey, Robert E., 1996. "Wages and foreign ownership A comparative study of Mexico, Venezuela, and the United States," Journal of International Economics, Elsevier, vol. 40(3-4), pages 345-371, May.
  27. Sherwin Rosen, 1982. "Authority, Control, and the Distribution of Earnings," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 311-323, Autumn.
  28. Zhu, Susan Chun & Trefler, Daniel, 2005. "Trade and inequality in developing countries: a general equilibrium analysis," Journal of International Economics, Elsevier, vol. 65(1), pages 21-48, January.
  29. Andrew B. Bernard & Raymond Robertson & Peter K. Schott, 2004. "Is Mexico A Lumpy Country?," NBER Working Papers 10898, National Bureau of Economic Research, Inc.
  30. Gordon H. Hanson & Ann Harrison, 1999. "Trade liberalization and wage inequality in Mexico," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 52(2), pages 271-288, January.
  31. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-42, June.
  32. Luis Garicano, 2000. "Hierarchies and the Organization of Knowledge in Production," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 874-904, October.
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