Offshoring And Growth With Two Factors

Offshoring has received a lot of attention lately. However, the debate is largely confined to the static effects. This paper shows that there are important implications of offshoring on the growth rate in an economy. In this paper, the author shows that offshoring a larger share of unskilled workers tasks, has an ambiguous effect on the growth rate of the economy. Recent work on offshoring emphasizes the cost-savings effect due to offshoring. However, the author highlights the factor markets as an important channel by showing that the condition under which offshoring has a positive or negative impact on the growth rate in the economy is linked to the factor markets.