Working Paper Series no. 580: Offshoring and Skill-upgrading in French Manufacturing: A Heckscher-Ohlin-Melitz View

Abstract

We present a factor-proportions trade model in which heterogeneous firms can offshore intermediate inputs subject to fixed offshoring costs. In the skill-abundant country, high-productivity firms offshore a larger range of labor-intensive inputs to the labor-abundant countries than low-productivity firms. Differently from the traditional versions of factor-proportions trade theory, Heckscher-Ohlin forces operate at the within-industry level, leading to endogenous within-industry variation in skill intensity that is positively correlated with firm productivity. Using French firm-level data for the years 1996 to 2007, we provide empirical support for the factor proportions channel through which offshoring to labor-abundant countries affects the firm-level skill intensities of French manufacturers.

Juan Carluccio, Alejandro Cuñat, Harald Fadinger and Christian Fons-Rosen
December 2015

Classification JEL : F11, F12, F14

Keywords : offshoring, heterogeneous firms, firm-level factor intensities, Heckscher-Ohlin