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How remote is the offshoring threat?

By Keith Head, Thierry Mayer and John Ries

Abstract

International audienceAdvances in communication technology make it possible for workers in India to supply business services to head offices located anywhere. This has the potential to put high-wage workers in direct competition with much lower paid Indian workers. Service trade, however, like goods trade, is subject to strong distance effects, implying that the remote supply of services remains limited. We investigate this proposition by deriving a gravity-like equation for service trade and estimating it for a large sample of countries and different categories of service trade. We find that distance costs are high but are declining over time. Our estimates suggest that delivery costs create a significant advantage for local workers relative to competing workers in distant countries

Topics: Trade, Outsourcing, Offshoring, Services, Distance effects, JEL: F - International Economics/F.F1 - Trade/F.F1.F14 - Empirical Studies of Trade, JEL: F - International Economics/F.F1 - Trade/F.F1.F15 - Economic Integration, JEL: F - International Economics/F.F1 - Trade/F.F1.F16 - Trade and Labor Market Interactions, [SHS.ECO]Humanities and Social Sciences/Economics and Finance
Publisher: 'Elsevier BV'
Year: 2009
DOI identifier: 10.1016/j.euroecorev.2008.08.001
OAI identifier: oai:HAL:hal-00639596v1
Provided by: HAL-Paris1
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