Working Paper: NBER ID: w12721
Authors: Gene M. Grossman; Esteban Rossi-Hansberg
Abstract: For centuries, most international trade involved an exchange of complete goods. But, with recent improvements in transportation and communications technology, it increasingly entails different countries adding value to global supply chains, or what might be called "trade in tasks." We propose a new conceptualization of the global production process that focuses on tradable tasks and use it to study how falling costs of offshoring affect factor prices in the source country. We identify a productivity effect of task trade that benefits the factor whose tasks are more easily moved offshore. In the light of this effect, reductions in the cost of trading tasks can generate shared gains for all domestic factors, in contrast to the distributional conflict that typically results from reductions in the cost of trading goods.
Keywords: Offshoring; Trade in Tasks; Globalization; Labor Economics
JEL Codes: F11; F16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| reductions in the cost of trading tasks (F16) | productivity effect (O49) |
| reductions in the cost of trading tasks (F16) | demand for low-skilled labor (J69) |
| demand for low-skilled labor (J69) | wages (J31) |
| reductions in the cost of trading tasks (F16) | wages (J31) |
| decrease in offshoring costs (F69) | terms of trade (F14) |
| terms of trade (F14) | low-skilled wages (J31) |
| increase in offshoring (F69) | reabsorption of low-skilled workers (J69) |
| reabsorption of low-skilled workers (J69) | wages (J31) |