The Muddles over Outsourcing

Jagdish Bhagwati, Arvind Panagariya and T. Srinivasan
Additional contact information
Jagdish Bhagwati: Columbia University

International Trade from University Library of Munich, Germany

Abstract: Critics have muddled the public debate over offshore outsourcing by using the term interchangeably to refer to altogether different phenomena such as on-line purchase of services, direct foreign investment and, sometimes, all imports. We argue that clarity requires distinguishing among these various phenomena and define outsourcing explicitly as the services trade at arm's length that does not require geographical proximity of the buyer and the seller—the so-called Mode 1 services in the WTO terminology—conducted principally via the electronic mediums such as the telephone, fax and Internet. The definition is appropriate because this is the phenomenon that is relatively new and scary in public consciousness and has fueled the recent “outsourcing” debate. Under this definition, the total number of the U.S. jobs outsourced annually is minuscule and is expected to remain so over the next decade, even on a gross basis (i.e., without adjusting for the jobs in-sourced from the U.S.). The fears that offshore outsourcing will lead to high-value jobs being replaced by low-value jobs down the road are also argued here to be implausible in view of several qualitative arguments to the contrary. We also demonstrate that offshore outsourcing of Mode 1 services raises no new analytical issues, contrary to what many fear. Thus, it leads to gains from trade (with the standard caveats applicable to conventional trade in goods) and, in specific cases, to income-distribution effects.

Keywords: Outsourcing; WTO; Services (search for similar items in EconPapers)
JEL-codes: F1 F2 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2004-08-28
Note: Type of Document - pdf; pages: 47
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (192)

Downloads: (external link)
https://econwpa.ub.uni-muenchen.de/econ-wp/it/papers/0408/0408004.pdf (application/pdf)

Related works:
Journal Article: The Muddles over Outsourcing (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpit:0408004

Access Statistics for this paper

More papers in International Trade from University Library of Munich, Germany
Bibliographic data for series maintained by EconWPA ( this e-mail address is bad, please contact ).