Trading Tasks: A Dynamic Theory of Offshoring

Konferenzbeitrag

This paper is a dynamic extension of the well-known theory of trade in tasks. In my model, a firm's offshoring decision is governed by production cost savings, but also considers potential imitation risk. I show that such a consideration reduces the level of offshoring compared to a static optimization and that adjustment of offshoring volume with respect to changes in offshoring costs or labor endowment is characterized by overshooting and subsequent movement toward a steady state. Moreover, I find that offshoring affects wages via more channels than are apparent in static models. More precisely, I identify a short-run intertemporal profit effect and a long-run composition effect, both of which depend on the endogenous rate of product imitation. These effects can reverse well-known static wage effects from offshoring, such as the labor supply effect and productivity effect. The dynamic adjustment predicted by this model has important implications for empirical strategies seeking to identify a meaningful correlation of offshoring and relative wages.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Beiträge zur Jahrestagung des Vereins für Socialpolitik 2013: Wettbewerbspolitik und Regulierung in einer globalen Wirtschaftsordnung - Session: Offshoring ; No. B16-V2

Classification and Topics

• Classification: Wirtschaft ; Models of Trade with Imperfect Competition and Scale Economies; Fragmentation ; Trade and Labor Market Interactions ; Wage Level and Structure; Wage Differentials

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Benz, Sebastian
• Event: Veröffentlichung
• (who): ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften, Leibniz-Informationszentrum Wirtschaft
• (where): Kiel und Hamburg
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/79816
• Last update: 10.03.2025, 11:44 AM CET