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The Muddles over Outsourcing

By Jagdish Bhagwati, Arvind Panagariya and T. N. Srinivasan

Abstract

Note: Readers who are not theoretically inclined may skip Section III without loss of continuity. The public debate on outsourcing is muddled by confusions regarding the precise phenomenon that outsourcing represents and whether it is something to which the conventional principles of international trade may not apply. Critics use the term interchangeably to refer to altogether different phenomena such as on-line purchase of services, direct foreign investment and, sometimes, all imports. We argue that clarity requires distinguishing among these various phenomena and define outsourcing explicitly as the services trade at arm's length that does not require geographical proximity of the buyer and the seller—the so-called Mode 1 services in the WTO terminology— conducted principally via the electronic mediums such as the telephone, fax and Internet. The definition is appropriate because this is the phenomenon that is relatively new and scary in public consciousness and has fueled the recent “outsourcing ” debate. Under this definition, the total number of the U.S. jobs outsourced annually is minuscule and i

Year: 2004
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