Task Trade Between Similar Countries

Gene M. Grossman, Esteban Rossi-Hansberg

Research output: Contribution to journalArticlepeer-review

95 Scopus citations

Abstract

We propose a theory of task trade between countries that have similar relative factor endowments and technological capabilities, but may differ in size. Firms produce differentiated goods by performing a continuum of tasks, each of which generates local spillovers. Tasks can be performed at home or abroad, but offshoring entails costs that vary by task. In equilibrium, the tasks with the highest offshoring costs may not be traded. Among the remainder, those with the relatively higher offshoring costs are performed in the country that has the higher wage and the higher aggregate output. We discuss the relationship between equilibrium wages, equilibrium outputs, and relative country size.

Original languageEnglish (US)
Pages (from-to)593-629
Number of pages37
JournalEconometrica
Volume80
Issue number2
DOIs
StatePublished - Mar 2012

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Keywords

  • Fragmentation
  • Globalization
  • Offshoring
  • Outsourcing
  • Production chains

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