Introduction

Outsourcing and offshoring of services has attracted a lot of interest recently, perhaps in large part for the simple reason that it is a relatively new phenomenon. But much of the interest is not just academic curiosity. Some concern is generated by the offshoring of white-collar services to relatively low-income countries such as India. It was one thing when low to moderately skilled manufacturing jobs were gradually lost to lower-income countries over the last two decades, but somehow the potential competition for and loss of white-collar jobs seems just as threatening.

There has been little new theory to guide us in understanding this expansion of trade and investment into new activities which were previously classified as non-traded. Possibly, no new theory is needed, and the new trade in services is just a particular case of our more general models. But at the very least, a more detailed development of this ‘particular case’ seems warranted given the empirical and policy attention it has received. The purpose of this paper is thus to inquire how theory might be adapted and developed to shed light on the new offshoring of white-collar services. Particular attention will be paid to small open high-skilled economies, and how they might be affected by increased trade in skilled services.

Defining services has always proved difficult and ambiguous, and I will instead simply indicate a range of activities that I have in mind.