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Task trade between similar countries

Author

Listed:
  • Grossman, Gene M.
  • Rossi-Hansberg, Esteban

Abstract

The authors propose a theory of task trade between countries that have similar relative factor endowments and technological capabilities but may differ in size. Firms produce differentiated goods by performing a continuum of tasks, each of which generates local spillovers. Tasks can be performed at home or abroad, but offshoring entails costs that vary by task. In equilibrium, the tasks with the highest offshoring costs may not be traded. Among the remainder, those with the relatively higher offshoring costs are performed in the country that has the higher wage and higher aggregate output. The paper discusses the relationship between equilibrium wages, equilibrium outputs, and relative country size and examines how the pattern of specialization reflects the key parameters of the model.

Suggested Citation

  • Grossman, Gene M. & Rossi-Hansberg, Esteban, 2011. "Task trade between similar countries," Policy Research Working Paper Series 5819, The World Bank.
  • Handle: RePEc:wbk:wbrwps:5819
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    References listed on IDEAS

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    More about this item

    Keywords

    Economic Theory&Research; Trade Policy; Political Economy; Health Systems Development&Reform; Labor Policies;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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