DP6218 Offshoring: General Equilibrium Effects on Wages, Production and Trade

Author(s): Richard Baldwin, Frédéric Robert-Nicoud
Publication Date: April 2007
Keyword(s): inter-industry trade, intra-industry trade, offshoring, shadow migration, trade theorems
JEL(s): F02, F12, L22, R11
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=6218

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.