Our paper integrates results from trade-in-task theory into mainstream trade theory by developing trade-in-task analogues to the four famous theorems (Heckscher-Ohlin, factor price equalisation, Stolper-Samuelson, and Rybczynski) and showing the standard gains-from-trade theorem does not hold for trade-in-tasks. We show trade-in-tasks creates intraindustry trade in a Walrasian economy, and derive necessary and sufficient conditions for analyzing the impact of trade-in-tasks on wages and production. Extensions of the integrating framework easily accommodate

This paper studies the extensive and intensive margins of firms ’ global sourcing decisions. We develop a quantifiable multi-country sourcing model in which heterogeneous firms self-select into importing based on their productivity and country-specific variables. The model delivers a simple closed-form solution for firm profits as a function of the countries from which a firm im-ports, as well as those countries ’ characteristics. In contrast to canonical models of exporting in which firm profits are additively separable across exporting markets, we show that global sourc-ing decisions naturally interact through the firm’s cost function. In particular, the marginal change in profits from adding a country to the firm’s set of potential sourcing locations depends on the number and characteristics of other countries in the set. Still, under plausible para-metric restrictions, selection into importing features complementarity across markets and firms’ sourcing strategies follow a hierarchical structure analogous to the one predicted by exporting models. Our quantitative analysis exploits these complementarities to distinguish between a country’s potential as a marginal cost-reducing source of inputs and the fixed cost associated with sourcing from this country. Counterfactual exercises suggest that a shock to the potential

One feature of globalization is that countries are increasingly specialized in either innovation or in production. To understand the forces behind this specialization and its welfare consequences, we develop a monopolistic competition model of trade and multinational production (MP) in which firms face a tradeoff between producing close to customers and producing in the least-cost location. At the country level, the location of innovation and production is determined by comparative advantage and home market effects that arise from the interaction of trade and MP costs with increasing returns to scale. The model yields simple structural expressions for bilateral trade and MP that we use to calibrate the model across a set of OECD countries. Our counterfactual exercises shed light on the effect of falling MP costs, and the entry of China into world markets, on welfare between and within countries. We thank Pol Antras, Ariel Burstein, Arnaud Costinot, Jonathan Eaton, Gene Grossman, Samuel Kortum, James Markusen, Felix Tintelnot, and Jonathan Vogel, as well as seminar participants at several seminars and conferences for insightful comments. We also thank Treb Allen and Jakub Kominiarczuk for excellent research

part by the governments of Norway, Sweden, and the United Kingdom through the Multidonor Trust Fund for Trade and Development. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Traditionally, developed countries are the major exporters of services; however, technological developments in IT and communications over the last two decades have made it possible for developing countries to exploit their comparative advantage in some modern services. The driving force for this comparative advantage is the large pool of

Abstract: We analyze the effects of offshoring in a multisector-growth model where sectors differ by TFP-growth and where capital accumulation takes place. Our paper's focus is on the dynamic effects in the country which reallocates a part of its intermediate production to foreign production sites. We show that offshoring induces structural changes and has effects on GDP-growth which are omitted by "standard trade theory". These effects arise only if capital accumulation and demand patterns associated with Baumol's "cost disease" are incorporated into the model. Our model predicts that offshoring slows down the transition from a manufacturing economy to a services economy, which takes place in modern societies, thus having impacts on GDP-growth. A further implication (which is not modeled explicitly in our paper) is that these structural changes may change the "role" of the economy in world trade. That is, the dynamic effects may have impacts on the (quantitative) results of standard trade theory.

Abstract This paper studies the extensive and intensive margins of firms' global sourcing decisions. First, it presents three new facts on U.S. firms' import behavior that highlight the importance of the extensive margin in explaining cross-sectional variation in U.S. import volumes. These facts motivate the development of a quantifiable multi-country global sourcing model with heterogeneous firms, in which firms self-select into importing based on their productivity and country-specific variables (wages, trade costs, and technology). The model delivers a simple closed-form solution for firm profits as a function of the number and characteristics of the set of countries from which a firm has invested in being able to import. A key feature of this derived profit function is that the marginal increase in profits from adding a country to the firm's set of potential sourcing locations depends on the number and characteristics of other countries in the set. This makes the analysis of the extensive margin of sourcing more complicated than in models of exporting, where entry is typically assumed to be independent across markets. Under plausible parametric restrictions, however, selection into importing features complementarity across markets. In this case, we can use standard monotone comparative statics techniques to show that the sourcing strategies of firms follow a strict hierarchical structure, as in exporting models. In our empirical implementation of the model, we also exploit these complementarities to develop an algorithm, similar to

Abstract: We compare neoclassical and classical theories of outsourcing. The former is premised on an improved international division of labor and predicts a rise in the return to skill. This contrasts with the classical model, which emphasizes the distribution of income between labor and capital and its implications for investment and economic growth. But the classical model needs amendment in the contemporary world: International capital mobility, wage stagnation and vertical specialization indicate that the direction of trade depends on both absolute and comparative advantage. Moreover, the classical perspective must be modified to allow for the leakage of profits into financial assets. 1

Fragmentation and immiserising specialisation: the case of the textile and clothing sector Céline GIMET a, Bernard GUILHON b, Nathalie ROUX c halshs-00464393, version 1- 17 Mar 2010 Abstract: With production activity tending rapidly towards international fragmentation, this study examines the consequences for labour countries of the forms of specialisation brought about by fragmentation processes. It further addresses the risk that fragmented sectors may become excluded from greater developments within the manufacturing industry as a whole. An empirical analysis using panel data reveals that, contrary to expectation, the textile and clothing sector in labour countries does not always reap the positive benefits of this form of international trade integration. Rather, we observe a phenomenon of immiserising specialisation, due to a drop in relative wages within this sector.

We develop a monopolistic competition model of trade and multinational production (MP). Firms receive an idiosyncratic vector of productivities for different locations from a multivariate distribution. They also face distance related trade and MP costs. Thus, individual firms face a proximity—versus—comparative advantage trade-off to serve individual locations from close-by or high productivity locations. The model gives simple structural expressions for bilateral trade and MP. We use these expressions to calibrate the model across a set of OECD countries. We quantify the implications of openness to trade and MP on the allocation of employment between production and innovation, as well as the implications for wages, profits and overall welfare.