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Trading Tasks: A Simple Theory of Offshoring

Gene M. Grossman and Esteban Rossi-Hansberg
The American Economic Review
Vol. 98, No. 5 (Dec., 2008), pp. 1978-1997
Stable URL: http://www.jstor.org/stable/29730159
Page Count: 20
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Trading Tasks: A Simple Theory of Offshoring
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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.

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