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Offshoring and directed technical change

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Abstract

We study the short- and long-run implications of offshoring on innovation, technology adoption, wage and income inequality in a Ricardian model with directed technical change. In our model, profit maximization determines both the extent of offshoring and the direction of technological progress. A fall in the cost of offshoring induces technical change with an ambiguous factor bias. When the initial offshoring cost is high, an increase in offshoring opportunities triggers a transition with falling real wages for unskilled workers in the West, skill-biased technical change and rising skill premia worldwide. When the offshoring cost is sufficiently low, instead, further increases in offshoring opportunities induce technical change biased in favor of the unskilled workers and may lower the skill premium. Although offshoring improves the welfare of workers in the East, it may benefit or harm unskilled workers in the West depending on parameters, the level of offshoring and the equilibrium growth rate.

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File URL: https://econ-papers.upf.edu/papers/1362.pdf
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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 1362.

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Date of creation: Nov 2012
Date of revision: Jun 2014
Handle: RePEc:upf:upfgen:1362
Contact details of provider: Web page: http://www.econ.upf.edu/

Keywords: China; Directed Technical Change; Offshoring; Productivity growth; Skill Premium.;

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Find related papers by JEL classification:
  • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
  • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
  • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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Cited by:

  1. Ashima Goyal, 2013. "Growth drivers: ICT and inclusive innovations," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2013-018, Indira Gandhi Institute of Development Research, Mumbai, India.
  2. Gino Gancia, 2012. "Globalization, technology and inequality," Economics Working Papers 1363, Department of Economics and Business, Universitat Pompeu Fabra, revised Nov 2012.
  3. Egger, Hartmut & Kreickemeier, Udo & Wrona, Jens, 2015. "Offshoring domestic jobs," Journal of International Economics, Elsevier, vol. 97(1), pages 112-125.
  4. Linda Andersson & Patrik Karpaty & Selen Savsin, 2016. "Firm-level effects of offshoring of materials and services on relative labor demand," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 152(2), pages 321-350, May.
  5. Aleksandra Parteka & Joanna Wolszczak-Derlacz, 2015. "Integrated sectors - diversified earnings: the (missing) impact of offshoring on wages and wage convergence in the EU27," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 13(3), pages 325-350, September.
  6. Angus Chu & Guido Cozzi & Yuichi Furukawa, 2015. "Effects of Economic Development in China on Skill-Biased Technical Change in the US," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(2), pages 227-242, April.
  7. Li, Shang-ao & Pan, Shan & Chi, Shawn, 2016. "North–South FDI and directed technical change," Economic Modelling, Elsevier, vol. 59(C), pages 425-435.
  8. Song, Malin & Wang, Shuhong, 2016. "Can employment structure promote environment-biased technical progress?," Technological Forecasting and Social Change, Elsevier, vol. 112(C), pages 285-292.
  9. Kim, Sung-min & Hwang, Jin-tae, 2016. "Offshoring, wages, and heterogeneity," Japan and the World Economy, Elsevier, vol. 37, pages 65-72.
  10. Daron Acemoglu, 2015. "Localised and Biased Technologies: Atkinson and Stiglitz's New View, Induced Innovations, and Directed Technological Change," Economic Journal, Royal Economic Society, vol. 0(583), pages 443-463, 03.
  11. Meng, Xianwei & Wei, Xuan, 2016. "A Dynamic Model of Effects of Effects of Trade and Environmental Policies on Firms' Offshoring and Clean Technology Adoption Decisions," 2016 Annual Meeting, July 31-August 2, 2016, Boston, Massachusetts 236064, Agricultural and Applied Economics Association.

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