Globalization and the Open Economy

North American Journal of Economics and Finance, Vol. 8, No. 1, pp. 71-79, 1997

9 Pages Posted: 18 May 2006

See all articles by Sven W. Arndt

Sven W. Arndt

Claremont McKenna College - Robert Day School of Economics and Finance

Abstract

Does offshore sourcing by domestic producers destroy jobs? Does it lower wages? To a growing number of observers the answer to both questions appears to be affirmative. This paper examines the issue in the context of a conventional trade framework that has been amended to allow production to be disaggregated into its constituent activities. Offshore sourcing generally increases employment in an industry by creating more jobs in the remaining activities than are lost to sub-contracting. Offshore sourcing by labor-intensive importables industries raises both employment and wages. In general, offshore sourcing enables producers to strengthen their competitive positions against foreign rivals in the markets for end-products. When offshore sourcing involves simultaneous intra-product specialization in a labor-scarce importing country (like the United States) and a labor-abundant exporting country (like Mexico), employment and wages rise in both.

Keywords: fragmentation, globalization, regionalism, trade policy

JEL Classification: D51, F11

Suggested Citation

Arndt, Sven W., Globalization and the Open Economy. North American Journal of Economics and Finance, Vol. 8, No. 1, pp. 71-79, 1997, Available at SSRN: https://ssrn.com/abstract=902740

Sven W. Arndt (Contact Author)

Claremont McKenna College - Robert Day School of Economics and Finance ( email )

500 E. Ninth St.
Claremont, CA 91711-6420
United States

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