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lec08-eco101-11

lec08-eco101-11 - Lecture 8 c Marc-Andreas Muendler...

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International Trade Lecture 8 c Marc-Andreas Muendler University of California, San Diego October 18, 2011
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8. Intermediate Goods Trade and Offshoring Econ 101, c M. Muendler International Integration of Production International Integration of Production: Trade across borders but among contractually linked firms or within multinational firms International Integration of Production could also be called Interna- tional Disintegration of Production “Slicing the value chain” (Krugman 1996) “Vertical specialization” (Hummels, Rapaport, Yi 1997) Cross-border “outsourcing” (across firm boundaries), “offshoring” (within or across firm boundaries)
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8. Intermediate Goods Trade and Offshoring Econ 101, c M. Muendler Wage Inequality and International Trade Four competing theories Heckscher-Ohlin trade theory: Wages for the less skilled will fall in countries that are relatively abundant in high skilled labor Offshoring: Trade of intermediate goods across production stages with different factor intensities Trade in tasks: Costly remote contracting of tasks for single pro- duction stage Directed (biased) technical change: Advances in information tech- nology favor (complement) high skills more than low skills
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8. Intermediate Goods Trade and Offshoring Econ 101, c M. Muendler Offshoring, Outsourcing, Multinational Production Offshoring Intermediate production steps can be located onshore or offshore Borders of countries (today) Outsourcing Intermediate production steps can be outsourced or kept in-house Boundaries of firms Multinational production is in-house offshoring (Lecture 12)
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8. Intermediate Goods Trade and Offshoring Econ 101, c M. Muendler Trade in Intermediate and Final Goods Consider a Heckscher-Ohlin model. But allow virtual migration across borders Heckscher-Ohlin: Industries differ in factor intensities and coun- tries in endowments Heckscher-Ohlin: Factors can move costlessly across industries Virtual migration: Factors can be contracted costlessly across countries Under factor price equalization, virtual migration has no effect on fac- tor prices and goods prices, but it changes the location of production
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8. Intermediate Goods Trade and Offshoring Econ 101, c M. Muendler Rybczynski Theorem Theorem. If the endowment of one factor increases, then output of the industry that intensively uses the factor expands and output in the other industry contracts. (Factor prices and goods prices remain unchanged.) Proof.
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