Trading Tasks: A Simple Theory of Offshoring

37 Pages Posted: 6 Dec 2006 Last revised: 6 Oct 2022

See all articles by Gene M. Grossman

Gene M. Grossman

Princeton University - Princeton School of Public and International Affairs; Princeton University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Esteban Rossi-Hansberg

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

Date Written: December 2006

Abstract

For centuries, most international trade involved an exchange of complete goods. But, with recent improvements in transportation and communications technology, it increasingly entails different countries adding value to global supply chains, or what might be called "trade in tasks." We propose a new conceptualization of the global production process that focuses on tradable tasks and use it to study how falling costs of offshoring affect factor prices in the source country. We identify a productivity effect of task trade that benefits the factor whose tasks are more easily moved offshore. In the light of this effect, reductions in the cost of trading tasks can generate shared gains for all domestic factors, in contrast to the distributional conflict that typically results from reductions in the cost of trading goods.

Suggested Citation

Grossman, Gene M. and Rossi-Hansberg, Esteban A., Trading Tasks: A Simple Theory of Offshoring (December 2006). NBER Working Paper No. w12721, Available at SSRN: https://ssrn.com/abstract=948183

Gene M. Grossman (Contact Author)

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Esteban A. Rossi-Hansberg

University of Chicago - Department of Economics

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