Offshoring and heterogeneous firms: One job offshored, one job lost?

Arbeitspapier

Offshoring has gained a significant momentum in recent years. Firm size appears to be the leading factor differentiating firms that offshore from those that do not. We present a model that blends offshoring, or trade in tasks, with a Melitz-style model of monopolistic competition with heterogeneous firms and show that this is indeed the case. Accounting for firm heterogeneity offers new tools for analyzing the effects of offshoring on the employment dynamics within an individual firm and at the aggregate sector level. We show that offshoring unambiguously reduces per-firm labour demand in smaller firms, but has ambiguous effects in larger firms. As a result, irrespective of whether or not the number of firms operating in the offshoring nation increases, the overall sector employment may increase or decrease. Policies promoting free trade have a significant role to play in job creation. The model also permits a straightforward derivation of positive and normative effects of offshoring: trade in tasks increases productivity of active firms and improves welfare in the offshoring nation.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: HEI Working Paper ; No. 28/2007

Classification and Topics

• Classification: Wirtschaft ; Models of Trade with Imperfect Competition and Scale Economies; Fragmentation ; Trade and Labor Market Interactions ; International Factor Movements: Other
• Subject: trade in tasks ; offshoring ; heterogeneous firms ; employment ; productivity ; welfare ; Auslandsverlagerung ; Produktivität ; Beschäftigungseffekt ; Handelsliberalisierung ; Monopolistischer Wettbewerb ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bourtchouladze, Nana
• Event: Veröffentlichung
• (who): Graduate Institute of International Studies
• (where): Geneva
• (when): 2007

Further information

• Handle: http://hdl.handle.net/10419/77473
• Last update: 10.03.2025, 11:42 AM CET