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International Trade, Offshoring and Heterogeneous Firms

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  • Richard Baldwin
  • Toshihiro Okubo

Abstract

Recent trade models determine the equilibrium distribution of firm-level efficiency endogenously and show that freer trade shifts the distribution towards higher average productivity due to entry and exit of firms. These models ignore the possibility that freer trade also alters the firm-size distribution via international firm migration (offshoring); firms must, by assumption, produce in their 'birth nation.' We show that when firms are allowed to switch locations, new productivity effects arise. Freer trade induces the most efficient small-nation firms to move to the large nation. The big country gets an 'extra helping' of the most efficient firms while the small nation's firm-size distribution is truncated on both ends. This reinforces the big-nation productivity gain while reducing or even reversing the small-nation productivity gain. The small nation is nevertheless better off allowing firm migration.

Suggested Citation

  • Richard Baldwin & Toshihiro Okubo, 2011. "International Trade, Offshoring and Heterogeneous Firms," NBER Working Papers 16660, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:16660 Note: ITI
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    References listed on IDEAS

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    1. Okubo, Toshihiro, 2009. "Trade liberalisation and agglomeration with firm heterogeneity: Forward and backward linkages," Regional Science and Urban Economics, Elsevier, vol. 39(5), pages 530-541, September.
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    5. Stephen J. Redding, 2011. "Theories of Heterogeneous Firms and Trade," Annual Review of Economics, Annual Reviews, vol. 3(1), pages 77-105, September.
    6. Richard E. Baldwin & Toshihiro Okubo, 2006. "Heterogeneous firms, agglomeration and economic geography: spatial selection and sorting," Journal of Economic Geography, Oxford University Press, vol. 6(3), pages 323-346, June.
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    12. Tomiura, Eiichi, 2007. "Foreign outsourcing, exporting, and FDI: A productivity comparison at the firm level," Journal of International Economics, Elsevier, pages 113-127.
    13. Rikard Forslid & Toshihiro Okubo, 2010. "On the development strategy of countries of intermediate size -An analysis of heterogenous firms in a multiregion framework," Discussion Paper Series DP2010-36, Research Institute for Economics & Business Administration, Kobe University.
    14. Tomiura, Eiichi, 2007. "Foreign outsourcing, exporting, and FDI: A productivity comparison at the firm level," Journal of International Economics, Elsevier, pages 113-127.
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    16. Svetlana Demidova, 2008. "Productivity Improvements And Falling Trade Costs: Boon Or Bane?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(4), pages 1437-1462, November.
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    Citations

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    Cited by:

    1. Anderson, Kym & Strutt, Anna, 2012. "Agriculture and Food Security in Asia by 2030," ADBI Working Papers 368, Asian Development Bank Institute.
    2. Kym Anderson & Anna Strutt, 2012. "Agriculture and Food Security in Asia by 2030," Macroeconomics Working Papers 23309, East Asian Bureau of Economic Research.
    3. Richard E. Baldwin & Toshihiro Okubo, 2014. "Tax Competition with Heterogeneous Firms," Spatial Economic Analysis, Taylor & Francis Journals, pages 309-326.
    4. Rikard FORSLID & OKUBO Toshihiro, 2017. "Early Agglomeration or Late Agglomeration? Two phases of development with spatial sorting," Discussion papers 17001, Research Institute of Economy, Trade and Industry (RIETI).
    5. Peter Neary & Monika Mrazova, 2011. "Selection Effects with Heterogeneous Firms," Economics Series Working Papers 588, University of Oxford, Department of Economics.
    6. Kym Anderson & Anna Strutt, 2014. "Emerging economies, productivity growth and trade with resource-rich economies by 2030," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 58(4), pages 590-606, October.
    7. Joseph S. Shapiro & Reed Walker, 2015. "Why is Pollution from U.S. Manufacturing Declining? The Roles of Trade, Regulation, Productivity, and Preferences," NBER Working Papers 20879, National Bureau of Economic Research, Inc.
    8. Anderson, Kym & Strutt, Anna, 2013. "South America’s Contribution to World Food Markets: GTAP Projections to 2030," Working Papers 145369, International Agricultural Trade Research Consortium.
    9. Courty, Pascal & Pagliero, Mario, 2010. "Price variation antagonism and firm pricing policies," Journal of Economic Behavior & Organization, Elsevier, pages 235-249.
    10. Kym Anderson, 2012. "Costing Global Trade Barriers, 1900 to 2050," Departmental Working Papers 2012-08, The Australian National University, Arndt-Corden Department of Economics.
    11. Anderson, Kym & Strutt, Anna, 2012. "The changing geography of world trade: Projections to 2030," Journal of Asian Economics, Elsevier, pages 303-323.
    12. Rikard FORSLID & OKUBO Toshihiro, 2017. "Early Agglomeration or Late Agglomeration? Two phases of development with spatial sorting," Discussion papers 17001, Research Institute of Economy, Trade and Industry (RIETI).
    13. Anderson, Kym & Strutt, Anna, 2012. "Global food markets by 2030: What roles for farm TFP growth and trade policies?," 2012 Conference (56th), February 7-10, 2012, Freemantle, Australia 124192, Australian Agricultural and Resource Economics Society.
    14. Anderson, Kym & Strutt, Anna, 2012. "Asia’s Growth, the Changing Geography of World Trade, and Food Security: Projections to 2030," CEPR Discussion Papers 8950, C.E.P.R. Discussion Papers.

    More about this item

    JEL classification:

    • F1 - International Economics - - Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F2 - International Economics - - International Factor Movements and International Business

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