GEP 10/16: Offshoring and Growth with Two Factors

Summary

This paper looks at the impact of offshoring on the long-run growth rate of a small open economy. I show that offshoring has an ambiguous effect on growth. A condition for this result is presented in the paper and linked to labour market reallocation in response to offshoring.

Abstract

Offshoring has received a lot of attention lately. However, the debate is largely confined to the static effects. This paper shows that there are important implications of offshoring on the growth rate in an economy. In this paper I show that offshoring a larger share of unskilled workers tasks, has an ambiguous effect on the growth rate of the economy. Recent work on offshoring emphasizes the cost-savings effect due to offshoring. However, I highlight the factor markets as an important channel by showing that the condition under which offshoring has a positive or negative impact on the growth rate in the economy is linked to the factor markets.

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Authors

Andreas Hoefele

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