Offshoring and Skill Overlap: An Empirical Investigation

35 Pages Posted: 5 Jun 2020

See all articles by Jaerim Choi

Jaerim Choi

University of Hawaii at Manoa - Department of Economics

Date Written: September 2019

Abstract

Conventional international trade theory predicts that bilateral offshoring flows will be highest when two countries have very different relative factor endowments. In contrast, the new trade theory contends that offshoring is more likely to exist when countries’ relative factor endowments are similar. This paper empirically tests the relationship between offshoring and relative factor endowments, measured by the skill overlap index between two countries and finds evidence that there is an inverted U‐shape relationship. Our empirical results predict that the rise in educational attainment in China will motivate U.S. multinationals to send their tasks to China in the short run; over the long run, however, U.S. multinationals will have fewer incentives to send their tasks to China. This finding sheds new light on the current trade tensions between the United States and China and has implications for trade policy.

Suggested Citation

Choi, Jaerim, Offshoring and Skill Overlap: An Empirical Investigation (September 2019). Review of International Economics, Vol. 27, Issue 4, pp. 1199-1233, 2019, Available at SSRN: https://ssrn.com/abstract=3618547 or http://dx.doi.org/10.1111/roie.12423

Jaerim Choi (Contact Author)

University of Hawaii at Manoa - Department of Economics ( email )

Honolulu, HI
United States

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

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