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A Simple Theory of Offshoring and Reshoring

Listed author(s):
  • 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://ux-tauri.unisg.ch/RePEc/usg/econwp/EWP-1309.pdf
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Paper provided by University of St. Gallen, School of Economics and Political Science in its series Economics Working Paper Series with number 1309.

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Length: 12 pages
Date of creation: Mar 2013
Handle: RePEc:usg:econwp:2013:09
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  1. Antras, Pol, 2003. "Firms, Contracts, and Trade Structure," Scholarly Articles 3196328, Harvard University Department of Economics.
  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. Antras, Pol & Helpman, Elhanan, 2004. "Global Sourcing," Scholarly Articles 3196327, Harvard University Department of Economics.
  4. Pol Antràs & Luis Garicano & Esteban Rossi-Hansberg, 2005. "Offshoring in a Knowledge Economy," Discussion Papers 04-020, Stanford Institute for Economic Policy Research.
  5. Yuqing Xing, 2011. "Processing Trade, Exchange Rates and China’s bilateral Trade Balances," GRIPS Discussion Papers 10-30, National Graduate Institute for Policy Studies.
  6. Gene M. Grossman & Elhanan Helpman, 2002. "Integration versus Outsourcing in Industry Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 117(1), pages 85-120.
  7. John McLaren, 2000. ""Globalization" and Vertical Structure," American Economic Review, American Economic Association, vol. 90(5), pages 1239-1254, December.
  8. Gene M. Grossman & Elhanan Helpman, 2002. "Managerial Incentives and the International Organization of Production," Working Papers 147, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics.
  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. 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.
  11. repec:hrv:faseco:4784031 is not listed on IDEAS
  12. repec:hrv:faseco:4784029 is not listed on IDEAS
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