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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://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
Date of revision:
Handle: RePEc:usg:econwp:2013:09
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  1. Pol Antràs & Luis Garicano & Esteban Rossi-Hansberg, 2005. "Offshoring in a Knowledge Economy," NBER Working Papers 11094, National Bureau of Economic Research, Inc.
  2. 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.
  3. Pol Antràs & Elhanan Helpman, 2003. "Global Sourcing," NBER Working Papers 10082, National Bureau of Economic Research, Inc.
  4. Gene M. Grossman & Esteban Rossi-Hansberg, 2006. "Trading Tasks: A Simple Theory of Offshoring," NBER Working Papers 12721, National Bureau of Economic Research, Inc.
  5. Gene M. Grossman & Elhanan Helpman, 2002. "Outsourcing in a Global Economy?," Harvard Institute of Economic Research Working Papers 1966, Harvard - Institute of Economic Research.
  6. Pol Antràs, 2003. "Firms, Contracts, and Trade Structure," NBER Working Papers 9740, National Bureau of Economic Research, Inc.
  7. Xing, Yuqing, 2012. "Processing trade, exchange rates and China's bilateral trade balances," Journal of Asian Economics, Elsevier, vol. 23(5), pages 540-547.
  8. repec:hrv:faseco:4784031 is not listed on IDEAS
  9. repec:hrv:faseco:4784029 is not listed on IDEAS
  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. 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.
  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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