The Export-Magnification Effect of Offshoring

29 Pages Posted: 6 May 2012

See all articles by Joern Kleinert

Joern Kleinert

University of Tuebingen - Department of Economics

Nico Zorell

European Central Bank (ECB)

Date Written: April 20, 2012

Abstract

In this paper we provide a new explanation for the increase in world trade over the last two decades. We show analytically in a general equilibrium model with heterogeneous firms that a fall in variable offshoring costs boosts trade in differentiated final goods through an intra-industry reallocation of resources towards the more productive firms. That is what we call the export-magnification effect of offshoring. More specifically, lower barriers to offshoring reduce the average costs of inputs for offshoring firms and allow more firms to source cheap foreign intermediates, which improves firm-level price competitiveness. This, in turn, translates into higher export quantities of incumbent exporters (intensive margin) and the entry of new exporters (extensive margin). The increase in final goods trade comes on top of the boost to trade in intermediates. Hence the mechanism proposed in this paper is consistent with the fact that the share of intermediate goods in international trade has remained broadly stable over recent years.

Keywords: offshoring, international trade, multinational firms

JEL Classification: F12, F15, F23

Suggested Citation

Kleinert, Joern and Zorell, Nico, The Export-Magnification Effect of Offshoring (April 20, 2012). ECB Working Paper No. 1430. Available at SSRN: https://ssrn.com/abstract=2043036

Joern Kleinert (Contact Author)

University of Tuebingen - Department of Economics ( email )

Mohlstrasse 36
D-72074 Tuebingen, 72074
Germany

Nico Zorell

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
44
Abstract Views
451
PlumX Metrics