The Lost Decade for U.S. Manufacturing Jobs: A Story of Cost and Risk

45 Pages Posted: 20 Jan 2019 Last revised: 20 Aug 2019

See all articles by Nikolay Osadchiy

Nikolay Osadchiy

Emory University - Goizueta Business School

Sridhar Seshadri

University of Illinois at Urbana Champaign; Indian School of Business

Date Written: January 16, 2019

Abstract

We propose two perspectives on U.S. manufacturing job losses to countries in Asia in 1990-2011: production cost arbitrage and the management of supply-demand mismatch. In our model, a firm facing demand uncertainty decides between investing in domestic or overseas production capacity. The model predicts greater investment overseas when the cost arbitrage is high, switching cost is low, demand volatility is high, and the systematic risk in demand is above a certain threshold. Empirically, we observe strong support for the cost arbitrage motive in 1990-2000 and the risk management motive in 2001-2011, i.e., after China's entry into the WTO.

Keywords: Manufacturing, International trade, Outsourcing, Systematic risk, Empirical Study

JEL Classification: D21, D22, F13, F16, L24, L60

Suggested Citation

Osadchiy, Nikolay and Seshadri, Sridhar, The Lost Decade for U.S. Manufacturing Jobs: A Story of Cost and Risk (January 16, 2019). Available at SSRN: https://ssrn.com/abstract= or http://dx.doi.org/10.2139/ssrn.3317604

Nikolay Osadchiy (Contact Author)

Emory University - Goizueta Business School ( email )

1300 Clifton Road
Atlanta, GA 30322
United States

HOME PAGE: http://www.nikolayosadchiy.com

Sridhar Seshadri

University of Illinois at Urbana Champaign ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

Indian School of Business ( email )

Hyderabad, Gachibowli 500 019
India

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