Classical and Neoclassical Theories of Offshore Outsourcing

Deborah Winkler and William Milberg ()
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William Milberg: Department of Economics, New School for Social Research

No 1113, Working Papers from New School for Social Research, Department of Economics

Abstract: We compare neoclassical and classical theories of outsourcing. The former is premised on an improved international division of labor and predicts a rise in the return to skill. This contrasts with the classical model, which emphasizes the distribution of income between labor and capital and its implications for investment and economic growth. But the classical model needs amendment in the contemporary world: International capital mobility, wage stagnation and vertical specialization indicate that the direction of trade depends on both absolute and comparative advantage. Moreover, the classical perspective must be modified to allow for the leakage of profits into financial assets.

Pages: 21 pages
Date: 2011-10
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Citations: View citations in EconPapers (1)

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http://www.economicpolicyresearch.org/econ/2011/NSSR_WP_132011.pdf First version, 2011 (application/pdf)

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