Offshoring in a Knowledge Economy

97 Pages Posted: 29 Mar 2005

See all articles by Pol Antras

Pol Antras

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Luis Garicano

IE Business School; Centre for Economic Policy Research (CEPR)

Esteban Rossi-Hansberg

Princeton University - Department of Economics; National Bureau of Economic Research (NBER)

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Date Written: April 2005

Abstract

How does the formation of cross-country teams affect the organization of work an the structure of wages? To study this question we propose a theory of the assignmenof heterogeneous agents into hierarchical teams, where less skilled agents specialize in production and more skilled agents specialize in problem solving. We first analyze the properties of the competitive equilibrium of the model in a closed economy, and show that the model has a unique and efficient solution. We then study the equilibrium of a two-country model (North and South), where countries differ in their distributions of ability, and in which agents in different countries can join together in teams. We refer to this type of integration as globalization. Globalization leads to better matches for all southern workers but only for the best northern workers. As a result, we show that globalization increases wage inequality in the South but not necessarily in the North. We also study how globalization affects the size distribution of firms and the patterns of consumption and trade in the global economy.

Suggested Citation

Antras, Pol and Garicano, Luis and Rossi-Hansberg, Esteban Alejandro, Offshoring in a Knowledge Economy (April 2005). Harvard Institute of Economic Research Discussion Paper No. 2067. Available at SSRN: https://ssrn.com/abstract=694482 or http://dx.doi.org/10.2139/ssrn.694482

Pol Antras (Contact Author)

Harvard University - Department of Economics ( email )

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Luis Garicano

IE Business School ( email )

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Centre for Economic Policy Research (CEPR)

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Esteban Alejandro Rossi-Hansberg

Princeton University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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