APPLIED ECONOMICS AND POLICY Offshoring barriers, regulatory
burden and national welfare Indian Economic Review, 58, 1, July 2023
LINK TO PAPER LINK TO CHAU VIDEO
ARNAB BASU PROFESSOR
Charles H. Dyson School
of Applied Economics and Managementt Cornell SC Johnson College of Business Cornell University
Co-authors • Arnab K. Basu
• Nancy H. Chau
Professor, Charles H. Dyson School of Applied Economics and
Management, Cornell SC Johnson College of Business, Cornell University Professor, Charles H. Dyson School of Applied Economics and
Management, Cornell SC Johnson College of Business, Cornell University
• Subhayu Bandyopadhyay, Federal Reserve Bank of St. Louis • Devashish Mitra, Maxwell School of Citizenship and Public Affairs, Syracuse University
Summary Protectionist sentiment has risen recently in the US, fueled in part by worries
about job losses stemming from cheaper imports from China. More impor- tantly, there is the worry that improvements in offshoring technology will lead to shifting jobs abroad, in turn leading to higher unemployment and lower wages in the US. Te debate on this is far from settled, but these concerns have led to policy discussions regarding the use of offshoring regulations. A largely ignored issue here is the burden that US firms will face from such regu- lations, and how that may affect national welfare.
NANCY CHAU PROFESSOR
Charles H. Dyson School
of Applied Economics and Management Cornell SC Johnson College of Business Cornell University
In this context, the authors present a basic two-country model with full employment and wage flexibility in both nations, one a developed home nation, the other a developing foreign nation. Tey consider both the regu- latory burden of offshoring barriers and possible terms of trade gains from such barriers. Tey find that non-tariff barriers are shown to be unambigu- ously welfare-reducing, and tariff barriers raise welfare only when associated terms-of-trade gains exceed resulting regulatory burdens, in which case there is a positive optimal offshoring tax. Otherwise, free trade is optimal. Welfare reductions from an offshoring tax are more likely with several developed na- tions engaging in offshoring. Te authors rule out negative values of the policy variables since offshoring subsidies can only be financed through taxation, and are not a realistic policy option in an anti-offshoring environment.
TO IMPACT CONTENTS
RESEARCH WITH IMPACT: CORNELL SC JOHNSON COLLEGE OF BUSINESS • 2023 EDITION
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