The Economics of Offshoring

27 Pages Posted: 7 Mar 2012 Last revised: 16 Sep 2013

See all articles by Winston W. Chang

Winston W. Chang

University at Buffalo - Department of Economics

Date Written: March 6, 2012


This paper examines the various economic issues on offshoring (international outsourcing). It begins with a discussion of the factors that determine a firm's decision to offshore and illustrates, with simple models, the cost saving of offshoring certain stages of production and the advantages of specializing in some input production and engaging in other input trade. The paper then examines the recent trend in offshoring with emphasis on the rise of IT offshoring and also the characteristics of firms in relation to offshoring and exporting. The effect of offshoring and national welfare is then discussed in light of numerous results in recent empirical studies. After examining the current U.S. programs to help the displaced workers, the paper concludes with the various short-run and long-run policy proposals to solve the growing public concern and vexation on offshoring.

Keywords: offshoring, outsourcing, fragmentation, gains from offshoring, input trade and specialization, IT offshoring, economic welfare, U.S. policies, reform proposals

JEL Classification: A10, D21, D22, D63, F16, J28

Suggested Citation

Chang, Winston W., The Economics of Offshoring (March 6, 2012). Available at SSRN: or

Winston W. Chang (Contact Author)

University at Buffalo - Department of Economics ( email )

453 Fronczak Hall
Department of Economics, SUNY at Buffalo
Buffalo, NY 14260
United States
716-645-8671 (Phone)
716-645-2127 (Fax)


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