Offshoring, globalization, and welfare

Yiming Zhou and Dao-Zhi Zeng ()

The North American Journal of Economics and Finance, 2015, vol. 31, issue C, 75-93

Abstract: We investigate the issue of offshoring in a general-equilibrium model of two countries and one sector of increasing returns to scale. Our model uncovers that offshoring occurs and endogenously evolves in a bell-shaped pattern when trade costs decline, explaining some stylized facts in developed countries. Furthermore, this simple framework can be applied to examine the welfare issue. We find that a fall in offshoring costs benefits the high-wage country but hurts the low-wage country. On the other hand, the low-wage country benefits with trade liberalization. The impact of falling trade costs on the welfare of the high-wage country depends on the values of offshoring freeness.

Keywords: Offshoring; Globalization; Welfare; Footloose capital (search for similar items in EconPapers)
JEL-codes: F02 F12 L22 R11 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:31:y:2015:i:c:p:75-93

DOI: 10.1016/j.najef.2014.10.004

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