The Skill Content of Offshoring and Growth

Andreas Hoefele

Discussion Paper Series from Department of Economics, Loughborough University

Abstract: This paper analyses the effect of offshoring on the growth rate and welfare of a small open economy, taking into account the skill content of offshoring. The model exposes two opposing effects that increasing the extent of offshoring has on the growth rate. First, offshoring has a negative effect on the growth rate by increasing the relative wage of skilled labour and thus the costs of (skill intensive) research. Second, offshoring has a positive effect on the growth rate as it increases the effective labour endowments, which increases the size of the market and thus leads to more entry into research. Thus the overall effect of offshoring on the growth rate is ambiguous. The effect on welfare in the short run is positive, whereas the long-run welfare is ambiguous.

Keywords: Offshoring; Trade in Tasks; Growth; Skill Differences (search for similar items in EconPapers)
JEL-codes: F1 F4 O4 (search for similar items in EconPapers)
Date: 2013-10, Revised 2013-10
New Economics Papers: this item is included in nep-fdg
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