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Kleinert, Jörn
Zorell, Nico
Year of Publication: 
Series/Report no.: 
IAW-Diskussionspapiere 63
We propose a multi-country general equilibrium model with three sectors and heterogeneous firms to analyze the linkages between offshoring and exports. We model a world consisting of many advanced countries that trade differentiated goods among each other and one 'workbench country' that specializes on the production of an intermediate good and engages in inter-industry trade with each of the advanced countries. We show analytically that a closer integration of a 'workbench country' into the world economy allows more final goods producers to become exporters and raises the export quantities of incumbent exporters ('export-magnification effect'). At the same time, the least productive firms are forced to leave the market. Both effects raise the aggregate efficiency in the differentiated good sector. As a result, real wages and aggregate welfare unequivocally rise in the long run. However, this is associated with large-scale reallocations between sectors and within the differentiated good sector, which may be painful in the presence of frictions.
multinational firms
distance costs
Document Type: 
Working Paper

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