A Simple Model of Offshore Outsourcing,Technology Upgrading and Welfare

Jae-won Jung () and Jean Mercenier ()
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Jae-won Jung: THEMA, Université de Cergy-Pontoise.

No 2008-21, THEMA Working Papers from THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise

Abstract: We adapt Yeaple's (2005) heterogeneous agents framework to model firms in the North as making explicit offshore outsourcing decisions to cheap-labor economies. Globalization results from a lowering of the set-up costs incurred when engaging in offshore activities. We highlight how firms'technology transformations due to global- ization will induce skill upgrading in the North, increase aggregate productivity, av- erage wages and therefore total welfare at the cost of increased wage inequalities. We analytically derive mild conditions under which all consumers-including lower-skilled workers-will nevertheless gain from the surge of offshore outsourcing. A parameter- ized version of the model roughly calibrated on U.S. data is then numerically explored and confirms our positive welfare predictions.

Keywords: Offshore outsourcing; Globalization; Skill upgrading, Technology upgrading; Firm heterogeneity (search for similar items in EconPapers)
JEL-codes: F16 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-bec and nep-lab
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Citations: View citations in EconPapers (8)

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Related works:
Working Paper: A Simple Model of Offshore Outsourcing, Technology Upgrading and Welfare (2009)
Working Paper: A Simple Model of Offshore Outsourcing,Technology Upgrading and Welfare (2008)
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