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The export-magnification effect of offshoring

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  • Kleinert, Jörn
  • Zorell, Nico

Abstract

In this paper we argue that the surge in world trade over the two decades preceding the global downturn of 2008-09 can be partly explained by the export-magnification effect of offshoring. In a general equilibrium model with heterogeneous firms we show analytically that a fall in variable offshoring costs boosts trade in differentiated final goods through an intra-industry reallocation of resources towards the more productive firms. More specifically, lower barriers to offshoring reduce the input costs of incumbent offshoring firms and allow more firms to source cheap foreign intermediates, which improves firm-level price competitiveness. This, in turn, translates into higher export quantities of incumbent exporters (intensive margin) and entry of new exporters (extensive margin), thereby fostering trade in final goods.

Suggested Citation

  • Kleinert, Jörn & Zorell, Nico, 2010. "The export-magnification effect of offshoring," Tübinger Diskussionsbeiträge 330, University of Tübingen, School of Business and Economics.
  • Handle: RePEc:zbw:tuedps:330
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    References listed on IDEAS

    as
    1. Kleinert, Jörn & Toubal, Farid, 2007. "The impact of locating production abroad on activities at home," Tübinger Diskussionsbeiträge 314, University of Tübingen, School of Business and Economics.
    2. Jörn Kleinert & Farid Toubal, 2010. "Gravity for FDI," Review of International Economics, Wiley Blackwell, vol. 18(1), pages 1-13, February.
    3. Laszlo Goerke & Markus Pannenberg, 2007. "Trade Union Membership and Works Councils in West Germany," Industrielle Beziehungen - Zeitschrift fuer Arbeit, Organisation und Management - The German Journal of Industrial Relations, Rainer Hampp Verlag, vol. 14(2), pages 154-175.
    4. Zaby, Alexandra K., 2009. "The propensity to patent in oligopolistic markets," Tübinger Diskussionsbeiträge 323, University of Tübingen, School of Business and Economics.
    5. Felbermayr, Gabriel J. & Toubal, Farid, 2010. "Cultural proximity and trade," European Economic Review, Elsevier, vol. 54(2), pages 279-293, February.
    6. Heger, Diana & Zaby, Alexandra K., 2009. "The propensity to patent with vertically differentiated products: An empirical investigation," Tübinger Diskussionsbeiträge 325, University of Tübingen, School of Business and Economics.
    7. Gabriel Felbermayr & Benjamin Jung, 2011. "Trade Intermediation and the Organization of Exporters," Review of International Economics, Wiley Blackwell, vol. 19(4), pages 634-648, September.
    8. Gabriel Felbermayr & Benjamin Jung, 2011. "Trade Intermediation and the Organization of Exporters," Review of International Economics, Wiley Blackwell, vol. 19(4), pages 634-648, September.
    9. Heuer, Nina, 2010. "Occupation-specific south-north migration," Tübinger Diskussionsbeiträge 328, University of Tübingen, School of Business and Economics.
    10. Stadler, Manfred, 2006. "Education and innovation as twin-engines of growth," Tübinger Diskussionsbeiträge 302, University of Tübingen, School of Business and Economics.
    11. Schüle, Tobias, 2006. "Creditor coordination with social learning and endogenous timing of credit decisions," Tübinger Diskussionsbeiträge 307, University of Tübingen, School of Business and Economics.
    12. Heger, Diana & Zaby, Alexandra K., 2009. "The propensity to patent with horizontally differentiated products: An empirical investigation," Tübinger Diskussionsbeiträge 324, University of Tübingen, School of Business and Economics.
    13. Schüle, Tobias, 2006. "Forbearance lending and soft budget constraints in a model of multiple heterogeneous bank financing," Tübinger Diskussionsbeiträge 303, University of Tübingen, School of Business and Economics.
    14. Kleinert, Jörn & Toubal, Farid, 2010. "Foreign sales strategies of multinational enterprises," Tübinger Diskussionsbeiträge 327, University of Tübingen, School of Business and Economics.
    15. Klein, Nicole, 2009. "Die Balanced Scorecard als Basis einer Customer Care Scorecard zur Konzeption einer systematischen Kundenpflege," Tübinger Diskussionsbeiträge 322, University of Tübingen, School of Business and Economics.
    16. Töpfer, Klaus, 2006. "Offene Fragen und wissenschaftliche Herausforderungen der Entwicklungsund Umweltpolitik," Tübinger Diskussionsbeiträge 301, University of Tübingen, School of Business and Economics.
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    More about this item

    Keywords

    Offshoring; trade; multinational firms;
    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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