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- Title
CONSEQUENCES OF OFFSHORING TO DEVELOPING NATIONS: LABOR‐MARKET OUTCOMES, WELFARE, AND CORRECTIVE INTERVENTIONS.
- Authors
Bandyopadhyay, Subhayu; Basu, Arnab K.; Chau, Nancy H.; Mitra, Devashish
- Abstract
Our parsimonious two‐country (developed country and developing country) model of offshoring provides nuanced results. These include cases where wages monotonically improve, as well as where wages exhibit an inverted‐U relationship with offshoring cost reductions. We identify conditions under which these relationships hold. Since global welfare always rises with improvements in offshoring technology, we find that there is a role for a minimum wage (alternatively, wage tax) in the developing country. We derive such a policy's optimal level. There is also the possibility of a developed country optimal offshoring tax for extracting terms‐of‐trade benefits. We, finally, analyze the two‐country Nash equilibrium in policies.
- Subjects
OFFSHORE outsourcing; MINIMUM wage laws; NASH equilibrium; COST control; MARKETING research
- Publication
Economic Inquiry, 2020, Vol 58, Issue 1, p209
- ISSN
0095-2583
- Publication type
Article
- DOI
10.1111/ecin.12833