Offshoring and Directed Technical Change

Daron Acemoglu, Gino Gancia and Fabrizio Zilibotti

No 735, Working Papers from Barcelona School of Economics

Abstract: We study the short- and long-run implications of offshoring on innovation, technology adoption, wage and income inequality in a Ricardian model with directed technical change. A unique final good is produced by combining a skilled and an unskilled product, each produced from a continuum of intermediates (tasks). Some of these tasks can be transferred from a skill-abundant West to a skill-scarce East. Profit maximization determines both the extent of offshoring and technological progress. offshoring induces technical change with an ambiguous factor bias. When the initial level of offshoring is low, an increase in offshoring opportunities triggers a transition with falling real wages for unskilled workers in the West, skill-biased technical change and rising skill premia worldwide. As the extent of offshoring becomes sufficiently large, further increases in offshoring induce technical change biased in favor of the unskilled because offshoring closes the gap between unskilled wages in the West and the East, and this limits the power of the price effect fueling skill-biased technical change. Transitional dynamics reveal that offshoring and technical change are substitutes in the short run but complements in the long run. Finally, though offshoring improves the welfare of workers in the East, it may benefit or harm unskilled workers in the West depending on elasticities and the equilibrium growth rate.

Keywords: Skill Premium; directed technical change; offshoring; growth and productivity (search for similar items in EconPapers)
JEL-codes: F43 O31 O33 (search for similar items in EconPapers)
Date: 2015-09
New Economics Papers: this item is included in nep-ino, nep-ltv and nep-opm
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Citations: View citations in EconPapers (7)

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Related works:
Journal Article: Offshoring and Directed Technical Change (2015)
Working Paper: Offshoring and directed technical change (2014)
Working Paper: Offshoring and Directed Technical Change (2012)
Working Paper: Offshoring and Directed Technical Change (2012)
Working Paper: Offshoring and Directed Technical Change (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:735

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