Working Paper: CEPR ID: DP10864
Authors: Juan Carluccio; Alejandro Cuat; Harald Fadinger; Christian Fons-Rosen
Abstract: We present a factor-proportions trade model in which heterogeneous firms can offshore intermediate inputs subject to fixed offshoring costs. In the skill-abundant country, high-productivity firms offshore a larger range of labor-intensive inputs to the labor-abundant countries than low-productivity firms. Differently from the traditional versions of factor-proportions trade theory, Heckscher-Ohlin forces operate at the within-industry level, leading to endogenous variation in skill intensity across firms that is positively correlated with firm productivity. Using French firm-level data for the years 1996 to 2007, we provide empirical support for the factor proportions channel through which offshoring to labor-abundant countries affects the firm-level skill intensities of French manufacturers.
Keywords: firm-level; factor intensities; Heckscher-Ohlin; heterogeneous firms; offshoring
JEL Codes: F11; F12; F14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| offshoring to labor-abundant countries (F16) | increase in skill intensity of domestic production (J24) |
| higher productivity levels (O49) | increased inclination to offshore labor-intensive inputs (F16) |
| increased imports from labor-abundant countries (F16) | increase in domestic skill intensities (J24) |
| firm-level average skill intensity of imports from labor-abundant countries (F16) | firm productivity (D22) |
| fixed costs associated with offshoring (F23) | firms' decisions based on productivity levels (D21) |