Trading Tasks: A Simple Theory of O¤shoring

For centuries, most international trade involved an exchange of complete goods. But, with recent improvements in transportation and communications technology, it increasingly entails di¤erent countries adding value to global supply chains, or what might be called “trade in tasks.”We propose a theory of the global production process that focuses on tradable tasks and use it to study how falling costs of o¤shoring a¤ect factor prices in the source country. We identify a productivity e¤ect of task trade that bene…ts the factor whose tasks are more easily moved o¤shore. In the light of this e¤ect, reductions in the cost of trading tasks can generate shared gains for all domestic factors, in contrast to the distributional con‡ict that typically results from reductions in the cost of trading goods. Keywords: globalization, outsourcing, international trade, tasks JEL Classi…cation: F11, F16 The authors are grateful to David Autor, Richard Baldwin, Donald Davis, Jonathan Eaton, James Harrigan, Elhanan Helpman, Kala Krishna, Per Krusell, Frank Levy, Marc Melitz, Torsten Persson, Michael Pfuger, Stephen Redding, Richard Rogerson, Daniel Tre‡er and two anonymous referees for helpful comments and suggestions. They acknowledge with thanks the support of the National Science Foundation (SES 0211748, SES 0451712 and SES 0453125). Any opinions, …ndings, and conclusions or recommendations expressed in this paper are those of the authors and do not necessarily re‡ect the views of the National Science Foundation or any other organization.