Offshoring and Skill-Upgrading in French Manufacturing: A Heckscher-Ohlin Melitz View
54 Pages Posted: 5 Nov 2015
Date Written: October 13, 2015
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: offshoring, heterogeneous firms, firm-level factor intensities, Heckscher-Ohlin
JEL Classification: F110, F120, F140
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