Working Paper: NBER ID: w12991
Authors: Richard Baldwin; Frederic Robert-Nicoud
Abstract: A simple model of offshoring, which depicts offshoring as 'shadow migration,' permits straightforward derivation of necessary and sufficient conditions for the effects on wages, prices, production and trade. We show that offshoring requires modification of the four classic international trade theorems, so econometricians who ignore offshoring might reject the Heckscher-Ohlin theorem when a properly specified version held in the data. We also show that offshoring is an independent source of comparative advantage and can lead to intra-industry trade in a Walrasian setting. The model is extended to allow for two-way offshoring between similar nations, and to allow for monopolistic competition.
Keywords: offshoring; wages; trade; general equilibrium
JEL Codes: F11; F12; F16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Offshoring (F23) | Heckscher-Ohlin theorem (F11) |
| Offshoring serves as an independent source of comparative advantage (F23) | Wages, production, and trade patterns (J31) |
| Offshoring can lead to changes in the relative prices of goods and factor rewards (F16) | Wages and production (J31) |
| Offshoring raises the real wage of home labor (F66) | Real wage of home labor (D13) |
| Offshoring can lower the wage of capital workers (F66) | Wage of capital workers (D33) |
| Offshoring influences the relative shadow migration of labor and capital (F16) | Wages and production (J31) |