Task Trade between Similar Countries

The authors propose a theory of task trade between countries that have similar relative factor endowments and technological capabilities but may differ in size. Firms produce differentiated goods by performing a continuum of tasks, each of which generates local spillovers. Tasks can be performed at home or abroad, but offshoring entails costs that vary by task. In equilibrium, the tasks with the highest offshoring costs may not be traded. Among the remainder, those with the relatively higher offshoring costs are performed in the country that has the higher wage and higher aggregate output. The paper discusses the relationship between equilibrium wages, equilibrium outputs, and relative country size and examines how the pattern of specialization reflects the key parameters of the model.

[1]  John Newhouse,et al.  Boeing Versus Airbus: The Inside Story of the Greatest International Competition in Business , 2007 .

[2]  P. Krugman.  Scale Economies, Product Differentiation, and the Pattern of Trade , 1980 .

[3]  E. Helpman.  International trade in the presence of product differentiation, economies of scale and monopolistic competition: A Chamberlin-Heckscher-Ohlin approach , 1981 .

[4]  A. Yeats,et al.  Just How Big is Global Production Sharing? , 1998 .

[5]  F. Meyer.  Market structure and foreign trade: increasing returns, imperfect competition, and the international economy , 1986 .

[6]  Daniel Trefler,et al.  Sorting It Out: International Trade with Heterogeneous Workers , 2007, Journal of Political Economy.

[7]  S. Wei,et al.  Fear of Service Outsourcing , 2004 .

[8]  Kei-Mu Yi,et al.  Can Vertical Specialization Explain the Growth of World Trade? , 2000, Journal of Political Economy.

[9]  Giovanni Maggi,et al.  Diversity and Trade , 1998 .

[10]  Henryk Kierzkowski,et al.  Globalization and the consequences of international fragmentation , 2001 .

[11]  A. Rodrı́guez-Clare.  O ¤ shoring in a Ricardian World , 2007 .

[12]  Gordon H. Hanson,et al.  The Home Market Effect and Bilateral Trade Patterns , 2002 .

[13]  J. Melvin.  Increasing Returns to Scale as a Determinant of Trade , 1969 .

[14]  J. Falkinger,et al.  The distributional effects of international outsourcing in a 2×2 production model , 2003 .

[15]  M. Amiti.  Inter-industry trade in manufactures: Does country size matter? , 1998 .

[16]  J. Campa,et al.  The Evolving External Orientation of Manufacturing: A Profile of Four Countries , 1997 .

[17]  S. Wei,et al.  Fear of Service Outsourcing: Is it Justified? , 2004, SSRN Electronic Journal.

[18]  S. Wei,et al.  Service Offshoring, Productivity and Employment: Evidence from the Us , 2006 .

[19]  Avinash Dixit,et al.  Theory Of International Trade , 1980 .

[20]  Thomas J. Holmes,et al.  Geographic Concentration and Establishment Scale , 2002, Review of Economics and Statistics.

[21]  Thomas J. Holmes,et al.  Geographic Concentration and Establishment Size: Analysis in an Alternative Economic Geography Model , 2002 .

[22]  Wilfred J. Ethier.  Decreasing Costs in International Trade and Frank Graham's Argument for Protection , 1982 .

[23]  E. Rossi-Hansberg,et al.  External Economies and International Trade Redux , 2008 .

[24]  Wilfred J. Ethier.  National and International Returns to Scale in the Modern Theory of International Trade , 1982 .

[25]  R. Baldwin,et al.  Trade-in-Goods and Trade-in-Tasks: An Integrating Framework , 2010 .

[26]  Wilhelm Kohler,et al.  International Outsourcing and Factor Prices with Multistage Production , 2004 .

[27]  P. Krugman.  Increasing returns, monopolistic competition, and international trade , 1979 .

[28]  Wilfred J. Ethier,et al.  DECREASING COSTS IN INTERNATIONAL TRADE AND , 1982 .

[29]  Elhanan Helpman,et al.  Increasing returns, imperfect markets, and trade theory , 1984 .

[30]  Gordon H. Hanson,et al.  Foreign Investment, Outsourcing and Relative Wages , 1995 .

[31]  David Autor,et al.  The Skill Content of Recent Technological Change: An Empirical Exploration , 2003 .

[32]  Gordon H. Hanson,et al.  Vertical Production Networks in Multinational Firms , 2003, Review of Economics and Statistics.

[33]  Alan V. Deardorff.  Fragmentation in Simple Trade Models , 1998 .

[34]  Gene M. Grossman,et al.  The Political Economy of Trade Policy: Papers in Honor of Jagdish Bhagwati , 1996 .

[35]  R. Lucas.  Lectures on economic growth , 2002 .

[36]  Richard J. Murnane,et al.  The New Division of Labor: How Computers Are Creating the Next Job Market , 2004 .

[37]  David Hummels,et al.  The Nature and Growth of Vertical Specialization in World Trade , 1999 .

[38]  Kiminori Matsuyama,et al.  Increasing Returns, Industrialization, and Indeterminacy of Equilibrium , 1991 .

[39]  Wilhelm Kohler.  Aspects of International Fragmentation , 2003 .

[40]  Alan V. Deardorff.  Fragmentation Across Cones , 1998 .

[41]  D. Davis,et al.  Intra-industry trade: A Heckscher-Ohlin-Ricardo approach , 1995 .

[42]  H. Kierzkowski,et al.  The role of services in production and international trade , 1988 .

[43]  Dana Rapoport,et al.  Vertical Specialization and the Changing Nature of World Trade , 1998 .

[44]  J. Campa,et al.  The Evolving External Orientation of Manufacturing Industries: Evidence from Four Countries , 1997 .

[45]  Richard J. Murnane,et al.  The New Division of Labor , 2004 .

[46]  Alexandra Spitz-Oener.  Technical Change, Job Tasks, and Rising Educational Demands: Looking outside the Wage Structure , 2006, Journal of Labor Economics.

[47]  P. Krugman.  Increasing Returns and Economic Geography , 1991 .

[48]  A. Marshall.  Principles of Economics , .

[49]  P. Romer.  Increasing Returns and Long-Run Growth , 1986, Journal of Political Economy.

[50]  J. Markusen,et al.  Trade, Factor Prices, and the Gains from Trade with Increasing Returns to Scale , 1981 .