Trading Tasks: A Simple Theory of Offshoring

Gene Grossman and Esteban Rossi-Hansberg

No 12721, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: For centuries, most international trade involved an exchange of complete goods. But, with recent improvements in transportation and communications technology, it increasingly entails different countries adding value to global supply chains, or what might be called "trade in tasks." We propose a new conceptualization of the global production process that focuses on tradable tasks and use it to study how falling costs of offshoring affect factor prices in the source country. We identify a productivity effect of task trade that benefits the factor whose tasks are more easily moved offshore. In the light of this effect, reductions in the cost of trading tasks can generate shared gains for all domestic factors, in contrast to the distributional conflict that typically results from reductions in the cost of trading goods.

JEL-codes: F11 F16 (search for similar items in EconPapers)
Date: 2006-12
New Economics Papers: this item is included in nep-int
Note: EFG ITI
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Citations: View citations in EconPapers (122)

Published as Gene M. Grossman & Esteban Rossi-Hansberg, 2008. "Trading Tasks: A Simple Theory of Offshoring," American Economic Review, American Economic Association, vol. 98(5), pages 1978-97, December.

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