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Export-Magnification Effect of Offshoring

Author

Listed:
  • Jörn Kleinert
  • Nico Zorell
Abstract
We propose a multi-country general equilibrium model with three sectors and heterogeneous firms to analyze the linkages between offshoring and exports. We model a world consisting of many advanced countries that trade differentiated goods among each other and one "workbench country" that specializes on the production of an intermediate good and engages in inter-industry trade with each of the advanced countries. We show analytically that a closer integration of a "workbench country" into the world economy allows more final goods producers to become exporters and raises the export quantities of incumbent exporters ("export-magnification effect"). At the same time, the least productive firms are forced to leave the market. Both effects raise the aggregate efficiency in the differentiated good sector. As a result, real wages and aggregate welfare unequivocally rise in the long run. However, this is associated with large-scale reallocations between sectors and within the differentiated good sector, which may be painful in the presence of frictions.

Suggested Citation

  • Jörn Kleinert & Nico Zorell, 2010. "Export-Magnification Effect of Offshoring," IAW Discussion Papers 63, Institut für Angewandte Wirtschaftsforschung (IAW).
    • Handle: RePEc:iaw:iawdip:63
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    References listed on IDEAS

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    1. Filippo di Mauro & Joseph W. Gruber & Bernd Schnatz & Nico Zorell, 2011. "Where are global and U.S. trade heading in the aftermath of the trade collapse: issues and alternative scenarios," International Finance Discussion Papers 1017, Board of Governors of the Federal Reserve System (U.S.).
    2. Lewis, John & De Schryder, Selien, 2015. "Export dynamics since the Great Trade Collapse: a cross-country analysis," Bank of England working papers 535, Bank of England.

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    More about this item

    Keywords

    offshoring; multinational firms; distance costs;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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