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A Simple Theory of Offshoring and Reshoring

Chu, Angus C. and Cozzi, Guido and Furukawa, Yuichi (2013): A Simple Theory of Offshoring and Reshoring.

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Abstract

In this study, we predict a pattern of offshoring and reshoring over the course of economic development. We assume that offshoring requires both workers and capital in the offshored country. Hence, the accumulation of capital in the offshored country has two opposing effects on offshoring. On the one hand, it decreases the rental price of capital rendering offshoring more attractive. On the other hand, it increases the wage rate of workers rendering offshoring less attractive. Putting these two effects together, we analytically generate an offshoring Kuznets curve (i.e., an inverted-U pattern of offshoring), consistent with what observed in China.

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