smu economics & statistics working paper series

of Economic Theory Conference (Singapore), the Asia Pacific Trade Seminars (Honolulu), and the

In this paper, we develop a two-sector general equilibrium trade model which includes offshoring, sequential production and endogenous market structures. We analyze how relative factor endowments and various forms of globalization and tech-nological change affect incomes, production patterns and market structures. We show that, against common belief, a reduction in trade costs may lower the range of tasks offshored even though the total volume of offshoring increases. Also, we show that more fluctuation in offshoring production costs reduces firms ’ average number of pro-duction stages, which might explain recent empirical observations.