How remote is the offshoring threat?

Advances in communication technology make it possible for workers in India to supply business services to head offices located anywhere. This has the potential to put high-wage workers in direct competition with much lower paid Indian workers. Service trade, however, like goods trade, is subject to strong distance effects, implying that the remote supply of services remains limited. We investigate this proposition by deriving a gravity-like equation for service trade and estimating it for a large sample of countries and different categories of service trade. We find that distance costs are high but are declining over time. Our estimates suggest that delivery costs create a significant advantage for local workers relative to competing workers in distant countries.     

A rigorous approach to business services offshoring and North–North trade

Advances in information and communication technologies (ICTs) have gained economy-wide importance and raised concerns that even within North–North trade neither services nor high-skilled labour may be sheltered from international competition. Rather, both may be increasingly susceptible to offshoring. We present a novel theoretical framework for analysing offshoring with a focus on skilled labour in managing value-added chains. Thoroughly modelling demand and supply allows to explicitly track cause and effects. Accordingly, effects of business service offshoring are completely different and more diverse than those of material offshoring, with the effects inter alia depending on whether triggered by trade integration or ICT.