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A Simple Theory of Offshoring and Reshoring

  • Chu, Angus C.
  • Cozzi, Guido
  • Furukawa, Yuichi

In this study, we predict a pattern of offshoring and reshoring over the course of economic development. We achieve this, by extending Grossman and Rossi-Hansberg's (2008) model of offshoring in a simple way by assuming that offshoring requires both workers and capital in the offshored country. As a consequence, the accumulation of capital in the offshored country has two opposing effects on offshoring. On the one hand, it increases the wage rate of workers rendering offshoring less attractive. On the other hand, it decreases the rental price of capital rendering offshoring more attractive. Putting these two effects together, we analytically generate the inverted-U pattern of offshoring recently observed in China.

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File URL: http://mpra.ub.uni-muenchen.de/44557/1/MPRA_paper_44557.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 44557.

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Date of creation: Jan 2013
Date of revision: Feb 2013
Handle: RePEc:pra:mprapa:44557
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  1. Esteban Rossi-Hansberg & Pol Antras & Luis Garicano, 2005. "Offshoring in a Knowledge Economy," 2005 Meeting Papers 196, Society for Economic Dynamics.
  2. Gene M. Grossman & Elhanan Helpman, 2002. "Outsourcing in a Global Economy," Working Papers 149, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics..
  3. Gene M. Grossman & Elhanan Helpman, 2002. "Integration Versus Outsourcing In Industry Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 85-120, February.
  4. Antràs, Pol & Helpman, Elhanan, 2004. "Global Sourcing," CEPR Discussion Papers 4170, C.E.P.R. Discussion Papers.
  5. Gene M. Grossman & Elhanan Helpman, 2002. "Managerial Incentives and the International Organization of Production," Harvard Institute of Economic Research Working Papers 1987, Harvard - Institute of Economic Research.
  6. Chong-En Bai & Chang-Tai Hsieh & Yingyi Qian, 2006. "The Return to Capital in China," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 37(2), pages 61-102.
  7. repec:hrv:faseco:4784031 is not listed on IDEAS
  8. Yuqing Xing, 2011. "Processing Trade, Exchange Rates and China’s bilateral Trade Balances," GRIPS Discussion Papers 10-30, National Graduate Institute for Policy Studies.
  9. Gene M. Grossman & Esteban Rossi-Hansberg, 2006. "Trading Tasks: A Simple Theory of Offshoring," NBER Working Papers 12721, National Bureau of Economic Research, Inc.
  10. Antras, Pol, 2003. "Firms, Contracts, and Trade Structure," Scholarly Articles 3196328, Harvard University Department of Economics.
  11. repec:hrv:faseco:4784029 is not listed on IDEAS
  12. John McLaren, 2000. ""Globalization" and Vertical Structure," American Economic Review, American Economic Association, vol. 90(5), pages 1239-1254, December.
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