Abstract
We investigate the issue of offshoring in a general-equilibrium model of two countries and one sector of increasing returns to scale. Our model uncovers that offshoring occurs and endogenously evolves in a bell-shaped pattern when trade costs decline, explaining some stylized facts in developed countries. Furthermore, this simple framework can be applied to examine the welfare issue. We find that a fall in offshoring costs benefits the high-wage country but hurts the low-wage country. On the other hand, the low-wage country benefits with trade liberalization. The impact of falling trade costs on the welfare of the high-wage country depends on the values of offshoring freeness.
Original language | English |
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Pages (from-to) | 75-93 |
Number of pages | 19 |
Journal | North American Journal of Economics and Finance |
Volume | 31 |
DOIs | |
Publication status | Published - 2015 Jan 1 |
Keywords
- Footloose capital
- Globalization
- Offshoring
- Welfare
ASJC Scopus subject areas
- Finance
- Economics and Econometrics