Globalization and the open economy

• Published in: The North American journal of economics and finance Vol. 8; no. 1; pp. 71 - 79
• Main Author: Arndt, Sven W.
• Format: Journal Article
• Language: English
• Published: Elsevier Inc 1997; Elsevier
• Series: The North American Journal of Economics and Finance
• ISSN: 1062-9408; 1879-0860
• DOI: 10.1016/S1062-9408(97)90020-6

Does offshore sourcing by domestic producers destroy jobs? Does it lower wages? To a growing number of observers the answer to both questions appears to be affirmative. This paper examines the issue in the context of a conventional trade framework that has been amended to allow production to be disaggregated into its constituent activities. Offshore sourcing generally increases employment in an industry by creating more jobs in the remaining activities than are lost to sub-contracting. Offshore sourcing by laborintensive importables industries raises both employment and wages. In general, offshore sourcing enables producers to strengthen their competitive positions against foreign rivals in the markets for end-products. When offshore sourcing involves simultaneous intra-product specialization in a labor-scarce importing country (like the United States) and a labor-abundant exporting country (like Mexico), employment and wages rise in both.