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The Skill Content of Offshoring and Growth

Author

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  • Andreas Hoefele

    (School of Business and Economics, Loughborough University, UK)

Abstract

This paper analyses the effect of offshoring on the growth rate and welfare of a small open economy, taking into account the skill content of offshoring. The model exposes two opposing effects that increasing the extent of offshoring has on the growth rate. First, offshoring has a negative effect on the growth rate by increasing the relative wage of skilled labour and thus the costs of (skill intensive) research. Second, offshoring has a positive effect on the growth rate as it increases the effective labour endowments, which increases the size of the market and thus leads to more entry into research. Thus the overall effect of offshoring on the growth rate is ambiguous. The effect on welfare in the short run is positive, whereas the long-run welfare is ambiguous.

Suggested Citation

  • Andreas Hoefele, 2013. "The Skill Content of Offshoring and Growth," Discussion Paper Series 2013_12, Department of Economics, Loughborough University, revised Oct 2013.
  • Handle: RePEc:lbo:lbowps:2013_12
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    File URL: http://www.lboro.ac.uk/departments/sbe/RePEc/lbo/lbowps/LBOWPS_WP2013_12_Hoefele.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Offshoring; Trade in Tasks; Growth; Skill Differences;

    JEL classification:

    • F1 - International Economics - - Trade
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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