We argue that the narrative of variety-induced gains from trade in differentiated goods needs revision. If producing differentiated varieties of a good requires differentiated skills and if the work force is heterogeneous in these skills, then firms are likely to have monopsony power. We show...

This paper investigates the role of firm productivity in drawing firm boundaries in global sourcing. Our analysis focuses on how productivity affects the allocation of ownership rights between the headquarter of a firm and an intermediate input supplier (vertical integration vs. outsourcing), as...

In this paper, we explore the role of trade in differentiated final goods as well offshoring of tasks for inequality both within and between countries. We emphasize the distinction between managerial and production labor. Production labor is assumed to be a variable input composed of tradable...

Many European countries restrict immigration from new EU member countries. The rationale is to avoid adverse wage and employment effects. We quantify these effects for Germany. Following Borjas (2003), we estimate a structural model of labor demand, based on elasticities of substitution between...

This paper identifies critical modeling choices, as well as differences in the driving forces behind offshoring, that may explain differences in results. Offshoring of industry-specific tasks has wage and employment effects that are vastly different from those identified in Grossman &...

We show that in a Ricardo-Viner-type trade model with unemployment due to search and matching the productivity effect of offshoring emphasized by Grossman & Rossi-Hansberg (2008) emerges as a vehicle of job creation. Improvements in the technology of offshoring causes job losses at the extensive...

We investigate the link between productivity of firms and their sourcing behavior. Following Antràs & Helpman (2004) we distinguish between domestic and foreign sourcing, as well as between outsourcing and vertical integration. A firm’s choice is driven by a hold-up problem caused by lack of...

Germany exhibits a strong reduction in domestic manufacturing production depth (bazaar effect). I argue that this reflects an unbundling of comparative advantage. Using a model where Ricardian plus Heckscher-Ohlin-type comparative advantage relates to fragments of production, I compare a trading...

In his seminal paper, Rose (2004) concluded from a gravity-type study of bilateral trade that the GATT/WTO does not play a strong role in encouraging trade. Rose looks at countries where the amount of trade was positive to start with (intensive margin). In this paper, we present a...

World trade evolves at two margins. Where a bilateral trading relationship already exists it may increase through time (intensive margin). But trade may also increase if a trading bilateral relationship is newly established between countries that have not traded with each other in the past...