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Off-shoring of business services and de-industrialization: threat or opportunity - and for whom?

By Frédéric Robert-Nicoud

Abstract

This paper takes a new look at the issue of overseas sourcing of services. In framework in which comparative advantage is endogenous to agglomeration economies and factor mobility, the fragmentation of production made possible by the new communication technologies and low transportation costs allow global firms (multinational corporations or individual firms active in global networks) to simultaneously reap the benefit of agglomeration economies in OECD countries and of low wages prevailing in countries with an ever better educated labour force like India. Thus, the reduction of employment in some routine tasks in rich countries in a general equilibrium helps sustain and reinforces employment in the core competencies in such countries. That is, the loss of some jobs permits to retain the ‘core competencies’ in the ‘core countries’. The welfare implications of this analysis are shown to be not as straightforward as in a neoclassical world

Topics: HF Commerce, HD Industries. Land use. Labor
Publisher: Centre for Economic Performance, London School of Economics and Political Science
Year: 2006
OAI identifier: oai:eprints.lse.ac.uk:19847
Provided by: LSE Research Online

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