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How ‘Little’ Outsourcing Creates A Large Skill Premium: A Model of N orth‐to‐ S outh Manufacturing Outsourcing
Author(s) -
Tang Xiang
Publication year - 2012
Publication title -
pacific economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.34
H-Index - 33
eISSN - 1468-0106
pISSN - 1361-374X
DOI - 10.1111/1468-0106.12002
Subject(s) - outsourcing , economics , microeconomics , task (project management) , trade volume , general equilibrium theory , industrial organization , international trade , business , marketing , management
This paper develops a general equilibrium model that shows that a small volume of N orth– S outh trade (i.e. 2% of N orthern GDP ) could have caused the observed rise in the skill premium, thus resolving the ‘small trade volume paradox’ in the skill premium debate. We apply the concept of ‘trade in tasks’ of G rossman and R ossi‐ H ansberg to analyze the nature of N orth‐to‐ S outh manufacturing outsourcing. As a conceptual innovation, we carefully distinguish two different implicit assumptions of the Heckscher–Ohlin model: ‘factor immobility’ versus ‘task inseparability’. We show that outsourcing, as a form of trade in tasks, essentially attains ‘task separability’ while apparently retaining factor immobility, thus rendering the traditional Heckscher–Ohlin framework obsolete for analyzing current N orth– S outh trade. We argue that this change in the nature of trade calls for new thinking in economics and public policy‐making.