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International Trade, Offshoring and Heterogeneous Firms

Author

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  • Richard E. Baldwin
  • Toshihiro Okubo
Abstract
Recent trade models determine the equilibrium distribution of firm-level efficiency endogenously and show that freer trade shifts the distribution towards higher average productivity because of entry and exit of firms. These models ignore the possibility that freer trade also alters the firm-size distribution via international firm migration (offshoring); firms must, by assumption, produce in their “birth nation.” We show that when firms are allowed to switch locations, new productivity effects arise. Freer trade induces the most efficient small-nation firms to move to the large nation. The large country gets an “extra helping” of the most efficient firms while the small nation's firm-size distribution is truncated on both ends. This reinforces the large-nation productivity gain while reducing or even reversing the small-nation productivity gain. The small nation is nevertheless better off allowing firm migration.

Suggested Citation

  • Richard E. Baldwin & Toshihiro Okubo, 2014. "International Trade, Offshoring and Heterogeneous Firms," Review of International Economics, Wiley Blackwell, vol. 22(1), pages 59-72, February.
    • Handle: RePEc:bla:reviec:v:22:y:2014:i:1:p:59-72
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    File URL: http://hdl.handle.net/10.1111/roie.12096
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    3. Gulzar Ali & Zhaohua Li, 2017. "An Empirical Investigation on the Role of exports, imports and its Determinants in Foreign Trade of Pakistan," Information Management and Business Review, AMH International, vol. 8(6), pages 39-58.
    4. Kym Anderson & Anna Strutt, 2016. "Impacts of Emerging Asia on African and Latin American Trade: Projections to 2030," The World Economy, Wiley Blackwell, vol. 39(2), pages 172-194, February.
    5. Joseph S. Shapiro & Reed Walker, 2018. "Why Is Pollution from US Manufacturing Declining? The Roles of Environmental Regulation, Productivity, and Trade," American Economic Review, American Economic Association, vol. 108(12), pages 3814-3854, December.
    6. Rikard FORSLID & OKUBO Toshihiro, 2017. "Early Agglomeration or Late Agglomeration? Two phases of development with spatial sorting," Discussion papers 17001, Research Institute of Economy, Trade and Industry (RIETI).
    7. Kym Anderson & Anna Strutt, 2012. "Agriculture and Food Security in Asia by 2030," Macroeconomics Working Papers 23309, East Asian Bureau of Economic Research.
    8. Ling-Yun He & Liang Wang, 2019. "Import Liberalization of Intermediates and Environment: Empirical Evidence from Chinese Manufacturing," Sustainability, MDPI, vol. 11(9), pages 1-15, May.
    9. Kym Anderson & Anna Strutt, 2014. "Emerging economies, productivity growth and trade with resource-rich economies by 2030," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 58(4), pages 590-606, October.
    10. Martín Tobal, 2017. "Regulatory Entry Barriers, Rent Shifting and the Home Market Effect," Review of International Economics, Wiley Blackwell, vol. 25(1), pages 76-97, February.
    11. Lurong Chen & Philippe De Lombaerde, 2013. "China moving up the value chain: What can be learned from the Asian NICs?," International Area Studies Review, Center for International Area Studies, Hankuk University of Foreign Studies, vol. 16(4), pages 407-430, December.
    12. Anderson, Kym & Strutt, Anna, 2012. "Global food markets by 2030: What roles for farm TFP growth and trade policies?," 2012 Conference (56th), February 7-10, 2012, Fremantle, Australia 124192, Australian Agricultural and Resource Economics Society.
    13. Joseph S. Shapiro & Reed Walker, 2015. "Why is Pollution from U.S. Manufacturing Declining" The Roles of Trade, Regulation, Productivity, and Preferences," Cowles Foundation Discussion Papers 1982R, Cowles Foundation for Research in Economics, Yale University, revised Sep 2016.
    14. Chen, Qifei & Shen, Yanzhi, 2021. "The impacts of offshore and onshore outsourcing on China's upgrading in global value chains: Evidence from its manufacturing and service sectors," Structural Change and Economic Dynamics, Elsevier, vol. 59(C), pages 263-280.
    15. Anderson, Kym & Strutt, Anna, 2012. "Asia?s Growth, the Changing Geography of World Trade, and Food Security: Projections to 2030," CEPR Discussion Papers 8950, C.E.P.R. Discussion Papers.
    16. Crespo, Aranzazu; Muñoz-Sepulveda, Jesus A., 2015. "The Role of Physical and Financial Constraints in Export Dynamics," Economics Working Papers MWP2015/17, European University Institute.
    17. Kym Anderson, 2012. "Costing Global Trade Barriers, 1900 to 2050," Departmental Working Papers 2012-08, The Australian National University, Arndt-Corden Department of Economics.
    18. Anderson, Kym & Strutt, Anna, 2013. "South America’s Contribution to World Food Markets: GTAP Projections to 2030," Working Papers 145369, International Agricultural Trade Research Consortium.
    19. Anderson, Kym & Strutt, Anna, 2012. "The changing geography of world trade: Projections to 2030," Journal of Asian Economics, Elsevier, vol. 23(4), pages 303-323.

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    More about this item

    JEL classification:

    • F1 - International Economics - - Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F2 - International Economics - - International Factor Movements and International Business

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