Inshoring: The Geographic Fragmentation of Production and Inequality

The advent of information technology facilitates the geographic separation of production tasks, which is referred to as offshoring in international contexts and inshoring in domestic contexts. Although the literature on offshoring has flourished, the research regarding inshoring is limited. This paper examines inshoring on both empirical and theoretical fronts. Empirically, it shows that business support services have been increasingly sent to small localities for cost savings while being separated from their downstream industries, which have been consistently concentrated in large cities. Guided by empirical findings, a system of cities model is formulated to analyze inshoring and its welfare impact. The analysis shows that support workers are made better off, primarily because inshoring allows support workers to benefit from higher urban productivity without bearing urban costs. JEL: D2; D3; D6; J3; J6; L2; L8; O3; R1; R2; R3