CONSEQUENCES OF OFFSHORING TO DEVELOPING NATIONS: LABOR-MARKET OUTCOMES, WELFARE, AND CORRECTIVE INTERVENTIONS

Subhayu Bandyopadhyay, Arnab K. Basu, Nancy H. Chau, Devashish Mitra

Research output: Contribution to journalArticle

Abstract

Our parsimonious two-country (developed country and developing country) model of offshoring provides nuanced results. These include cases where wages monotonically improve, as well as where wages exhibit an inverted-U relationship with offshoring cost reductions. We identify conditions under which these relationships hold. Since global welfare always rises with improvements in offshoring technology, we find that there is a role for a minimum wage (alternatively, wage tax) in the developing country. We derive such a policy's optimal level. There is also the possibility of a developed country optimal offshoring tax for extracting terms-of-trade benefits. We, finally, analyze the two-country Nash equilibrium in policies. (JEL F11, F13, F16, F66, O19, O24).

Original languageEnglish (US)
JournalEconomic Inquiry
DOIs
StateAccepted/In press - Jan 1 2019

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Economics and Econometrics

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