Working Paper: CEPR ID: DP5617
Authors: Frédéric Robert-Nicoud
Abstract: This paper takes a new look at the issue of overseas sourcing of services. In framework in which comparative advantage is endogenous to agglomeration economies and factor mobility, the fragmentation of production made possible by the new communication technologies and low transportation costs allow global firms (multinational corporations or individual firms active in global networks) to simultaneously reap the benefit of agglomeration economies in OECD countries and of low wages prevailing in countries with an ever better educated labour force like India. Thus, the reduction of employment in some routine tasks in rich countries in a general equilibrium helps sustain and reinforces employment in the core competencies in such countries. That is, the loss of some jobs permits to retain the 'core competencies' in the 'core countries'. The welfare implications of this analysis are shown to be not as straightforward as in a neoclassical world.
Keywords: communication costs; outsourcing; wage inequality
JEL Codes: F02; F12; L22; R11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| offshoring (F23) | reduction in employment for routine tasks (J63) |
| offshoring (F23) | sustain employment in core competencies (J20) |
| reduction in employment for routine tasks (J63) | sustain employment in core competencies (J20) |
| lower communication and transportation costs (R49) | offshoring (F23) |