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American Economic Review: Vol. 98 No. 5 (December 2008)

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Trading Tasks: A Simple Theory of Offshoring

Article Citation

Grossman, Gene M., and Esteban Rossi-Hansberg. 2008. "Trading Tasks: A Simple Theory of Offshoring." American Economic Review, 98(5): 1978-97.

DOI: 10.1257/aer.98.5.1978

Abstract

We propose a theory of the global production process that focuses on tradeable 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 F11, F16)

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Authors

Grossman, Gene M. (Princeton U)
Rossi-Hansberg, Esteban (Princeton U)

JEL Classifications

F11: Neoclassical Models of Trade
L23: Organization of Production
L24: Contracting Out; Joint Ventures; Technology Licensing
M11: Production Management


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