Diagnóstico general

As already mentioned in Section 6.1, Grossman and Rossi-Hansberg (2008) model the pro- duction process as a continuum of tasks. To clarify their contribution to the literature, we present related previous work and include the noteworthy contribution of Feenstra and Han- son (1996a) in this context. Compared to the above mentioned literature, the theory of task trade is in general more similar in spirit to the international fragmentation literature than to the literature on firms’ sourcing strategies. Kohler (2004b) is an example of a related interna-

tional fragmentation model. In his setup, there is a continuum of fragmented activities, each of which requires capital and labor. In contrast to Grossman and Rossi-Hansberg (2008), fragmentation is possible in only one sector, and the cost of trading fragmented activities is uniform.

Another strand of literature, which is related to both the fragmentation and the task trade literature, addresses offshoring in models with tradable intermediate inputs. Our review of this class of models is restricted to the influential work of Feenstra and Hanson (1996a).33 These authors analyze the contribution of offshoring to the decline in relative wages of un- skilled workers. It is assumed that the production of a single good requires both capital and a continuum of intermediate inputs that differ in their relative intensity of skilled and unskilled labor.34 In an equilibrium without factor price equalization, the South produces a range of inputs up to some critical ratio of skilled to unskilled labor, while the skill-abundant North produces the remaining inputs. As all intermediate inputs are traded costlessly in this model, the range of inputs produced abroad is determined by the countries’ factor endowments. An increase in the relative capital stock of the South leads to a shift of production activities to the South and, thus, to a rise in the relative wage of skilled workers in both countries. The reason is that the range of intermediate inputs produced in the South extends in such a way that the average skill intensity of inputs produced in each country rises. The theory is supported by an empirical analysis with respect to the impact of offshoring on relative wages of unskilled US workers during the 1980s. In comparison to the Feenstra and Hanson (1996a) approach, the main novelty of the paper by Grossman and Rossi-Hansberg (2008) is the introduction of heterogeneous cost for trading inputs.35

Having highlighted the main differences compared to the previous literature, we now present more details on the seminal work of Grossman and Rossi-Hansberg (2008). In their model, some tasks must be performed by low-skilled workers (L-tasks) and others by high-skilled workers (H-tasks). The production of each of two final goods requires a continuum of L- tasks and a continuum of H-tasks, but the factor intensities may differ between the two goods. Additionally, the cost for trading tasks is heterogeneous in order to capture the fact that different tasks vary in terms of tradability, i.e., suitability for offshoring.36 Cost-saving

33_{Feenstra and Hanson’s (1996a) model is further developed in the literature, one example being the work}

of Barba Navaretti and Venables (2004) on multinational firms.

34

The modeling approach of Feenstra and Hanson (1996a) is similar to the Heckscher-Ohlin model with a continuum of goods.

35

This review of previous work draws on Grossman and Rossi-Hansberg (2008, pp. 1979-80).

36_{See Grossman and Rossi-Hansberg (2008, footnote 2, p. 1978) for contributions that characterize tasks}

motives determine the geographic organization of firms, with the extent of offshoring being continuous.37 Studying the impact of falling offshoring cost on factor prices, Grossman and Rossi-Hansberg (2008) emphasize a productivity effect of increased task trade and show its analogy to factor-augmenting technological progress. This productivity effect benefits the factor whose tasks are easier to offshore. For instance, this means that offshoring of L-tasks is associated with rising wages for domestic low-skilled workers. The authors highlight that, due to this productivity effect, a fall in the offshoring cost may lead to shared gains for all domestic factors if the relative price effect or its impact on factor prices is not too large. This result contrasts with the standard factor-proportions theory, according to which falling cost of trading final goods leads to a distributional conflict. Grossman and Rossi-Hansberg (2008) offer a tractable model of offshoring that can be used to address its impact on prices, resource allocation, welfare, and other purposes. They extend the conventional Heckscher-Ohlin model and illustrate the important role of heterogeneous cost for trading tasks.38 According to the authors, the drawbacks of their theory are restrictive assumptions concerning the specific pro- duction technology and the transportation cost for partially processed goods. Nevertheless, the Grossman and Rossi-Hansberg (2008) model is widely used in the literature. Section 7.5 reviews some contributions on the employment effects of offshoring that build on this model but refrain from the full employment assumption.

In the following, we present the literature considering offshoring as a means of technology transfer in a growth context. This literature differs considerably from the aforementioned models, with the exception of Antr`as (2005).