Offshoring and Skill-Upgrading in French Manufacturing: A Heckscher-Ohlin-Melitz View

Abstract

We present a factor-proportions trade model in which heterogeneous firms can offshore intermediate inputs subject to fixed offshoring costs. In the skill-abundant country, high-productivity firms offshore a larger range of labor-intensive inputs to the labor-abundant countries than low-productivity firms. Differently from the traditional versions of factor-proportions trade theory, Heckscher-Ohlin forces operate at the within-industry level, leading to endogenous variation in skill intensity across firms that is positively correlated with firm productivity. Using French firm-level data for the years 1996 to 2007, we provide empirical support for the factor proportions channel through which offshoring to labor-abundant countries affects the firm-level skill intensities of French manufacturers.

Keywords: firm-level factor intensities, Heckscher-Ohlin, heterogeneous firms, offshoring

JEL Classification: F11, F12, F14