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Offshoring in a Knowledge Economy

Author

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  • Esteban Rossi-Hansberg

    () (Department of Economics Princeton University)

  • Pol Antras
  • Luis Garicano

Abstract

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 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.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Esteban Rossi-Hansberg & Pol Antras & Luis Garicano, 2005. "Offshoring in a Knowledge Economy," 2005 Meeting Papers 196, Society for Economic Dynamics.
  • Handle: RePEc:red:sed005:196
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Outsourcing; Offshoring; firm size; matching; wage inequality;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

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