DP10574 Multi-product Offshoring

Author(s): Carsten Eckel, Michael Irlacher
Publication Date: May 2015
Keyword(s): cannibalization effect, efficiency-seeking offshoring, general oligopolistic equilibrium, product range
JEL(s): F12, F23, L23
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=10574

We show that the labor market effects of product line relocations within multi-product firms differ significantly from the relocation of production tasks within single-product firms. By incorporating offshoring of labor-intensive goods in a model with multi-product firms, and exploring its implications in partial and general equilibrium, we identify the cannibalization effect of offshoring as an important transmission mechanism within multi-product firms and show that this effect hits domestic labor demand in addition to the well-known relocation effect. Furthermore, we contribute to the growing literature on multi-product firms and trade by showing that lower offshoring costs tend to increase the range of products produced.