Labour market effects of international outsourcing: A comparative analysis with micro-data
Final Report Abstract
In the remaining phase of the project, we searched for evidence on and driving forces for offshoring using highly disaggregated trade data. We suggest that traditional gravity formulations employed for this purpose are potentially mis-specified, and suggest an alternative specification where supply-side country differences compatible with Grossman and Rossi-Hansberg (2008) provide incentives for incomplete specialisation and trade with parts and components. Results support evidence for offshoring activities across Europe, driven by supply-side country differences. In particular, results in Frensch (2010a) confirm that more exports of parts and components from EU-10 to EU-15 countries are predominantly realised along the extensive margin, in stark contrast to parts and components exports from east Asia, including China. Further interpretation of the results in the spirit of Grossman and Rossi-Hansberg (2008) suggests the conjecture that the latest waves of offshoring activities from “old” to “new” EU members may have been more likely to hurt (low-skill) workers in the old EU than offshoring to east Asia. Searching for possible explanations for the stark contrast in margin behaviour of EU-15 imports of parts and components from EU-10 versus from east Asia, we reached for a comparatively strong institutional trade liberalisation between the EU-15 and the EU-10 in the latters’ run-up to EU membership as a possible explanation. Frensch (2010) indeed finds evidence that the import volume effect of institutional trade liberalisation is primarily realised along the extensive margin.
Publications
- European Trade in Parts and Components: Searching (for a Trade Model for Searching) for Offshoring Evidence. OEI Working Paper, Februar 2010, OEI Regensburg
Richard Frensch
