Hostname: page-component-78c5997874-ndw9j Total loading time: 0 Render date: 2024-11-06T00:19:29.041Z Has data issue: false hasContentIssue false
  • English
  • Français

OFFSHORING, RESHORING, UNEMPLOYMENT, AND WAGE DYNAMICS IN A TWO-COUNTRY EVOLUTIONARY MODEL

Published online by Cambridge University Press:  12 July 2019

Davide Radi ,
Fabio Lamantia  and
Gian Italo Bischi
Davide Radi*
Affiliation:
University of Pisa and VŠB–Technical University of Ostrava
Fabio Lamantia
Affiliation:
University of Calabria and VŠB–Technical University of Ostrava
Gian Italo Bischi
Affiliation:
University of Urbino Carlo Bo
*
Address correspondence to: Davide Radi, Department of Economics and Management, University of Pisa, Via C. Ridolfi, 10, 56124, Pisa (PI), Italy. e-mail: [email protected]. Phone: +39 050 2216318. Fax: +39 050 22 10 603 and Department of Finance, Faculty of Economics, VŠB–Technical University of Ostrava, Sokolská tř. 33, 701 21, Ostrava, Czech Republic. e-mail: [email protected]. Phone: +420 59 732 2336, Fax: +420 59 611 0026.
Get access Rights & Permissions [Opens in a new window]

Abstract

In this paper, the location patterns of Multinational Enterprises are modeled by an evolutionary two-country model in which producing in a developed economy offers strong cost-reducing externalities of within-country spillovers and opting for a developing economy entails cheap labor but also extra operational costs due to the undersupply of public goods. The offshoring process, that is, manufacturing activity outsourced in the developing economy, increases the bargaining power of its workers and, with it, its labor cost. The investigation underlines that an increasing labor-productivity remuneration in the developing economy may spark a reshoring process that depends on the agglomeration and endowment drivers characterizing an industry. The reshoring process can be narrowed by a flexible labor remuneration scheme, with wages indexed to the domestic concentration of manufacturing activity. The presence of sub-optimal location patterns points out the existence of a trade-off between stability and efficiency, which underlines that policy measures designed to make a country a more efficient location are neither sufficient nor necessary for preventing offshoring or ensuring reshoring.

Keywords

Manufacturing LocationOffshoring and ReshoringCost-reducing ExternalitiesLabor PoliciesIndustrial PoliciesNonlinear Evolutionary Model
Type
Articles
Information
Macroeconomic Dynamics , Volume 25 , Issue 3 , April 2021 , pp. 705 - 732
Copyright
© Cambridge University Press 2019

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

The authors wish to thank Pasquale Commendatore, Michael Kopel, Mario Pezzino, Jan Tuinstra, and two anonymous referees for their helpful suggestions and discussions and gratefully acknowledge financial support from EU COST Action IS1104 “The EU in the New Economic Complex Geography: Models, Tools and Policy Evaluation.” The authors also thank participants at the XLI AMASES Annual Meeting in Cagliari (2017), at the International Conference ESCoS (The Economy as a Spatial Complex System) in Naples (2018), and at the 59a SIE meeting in Bologna (2018). The research of the paper was supported by the research project “Dynamic Models for Behavioral Economics,” DESP–University of Urbino, Italy. Fabio Lamantia and Davide Radi gratefully acknowledge support by VŠB-TU Ostrava under the SGS Project SP2019/5.

References

REFERENCES

Adams, J. D. and Jaffe, A. B. (1996) Bounding the effects of R&D: An investigation using matched establishment-firm data. The RAND Journal of Economics 27(4), 700–721.CrossRefGoogle Scholar
Agliari, A., Commendatore, P., Foroni, I. and Kubin, I. (2014) Expectations and industry location: A discrete time dynamical analysis. Decisions in Economics and Finance 37(1), 3–26.CrossRefGoogle Scholar
Alcácer, J. and Chung, W. (2007) Location strategies and knowledge spillovers. Management Science 53(5), 760–776.CrossRefGoogle Scholar
Alcácer, J., Dezső, C. L. and Zhao, M. (2013) Firm rivalry, knowledge accumulation, and MNE location choices. Journal of International Business Studies 44(5), 504–520.CrossRefGoogle Scholar
Alcácer, J., Dezső, C. and Zhao, M. (2015) Location choices under strategic interactions. Strategic Management Journal 36(2), 197–215.CrossRefGoogle Scholar
Anon (2012). The end of cheap China? The Economist 402(8775), 63–64.Google Scholar
Backer, K. D., Menon, C., Desnoyers-James, I. and Moussiegt, L. (2016) Reshoring: Myth or reality? OECD Publishing 27, OECD Science, Technology and Industry Policy Papers, Paris.Google Scholar
Bischi, G. I. and Lamantia, F. (2002) Oligopoly Dynamics: Models and Tools, chapter Chaos synchronization and intermittency in a duopoly game with spillover effects, pp. 195–217. Berlin, Heidelberg: Springer.CrossRefGoogle Scholar
Bischi, G. I., Dawid, H. and Kopel, M. (2003a) Gaining the competitive edge using internal and external spillovers: A dynamic analysis. Journal of Economic Dynamics and Control 27(11–12), 2171–2193.CrossRefGoogle Scholar
Bischi, G. I., Dawid, H. and Kopel, M. (2003b) Spillover effects and the evolution of firm clusters. Journal of Economic Behavior & Organization 50(1), 47–75.CrossRefGoogle Scholar
Bischi, G. I., Kopel, M., Lamantia, F. and Radi, D. (2018) The Economy as a Complex Spatial System, chapter Knowledge spillovers, congestion effects, and long run location patterns, pp. 192–215. Springer Proceedings in Complexity. Springer-Open.CrossRefGoogle Scholar
Brakman, S., Garretsen, H. and van Marrewijk, C. (2008) Foreign Direct Investment and the Multinational Enterprise, chapter Agglomeration and government spending, pp. 89–116. Cambridge, Massachusetts: MIT Press.CrossRefGoogle Scholar
Braun, S. and Scheffel, J. (2007) Does international outsourcing depress union wages? SFB 649 Discussion Paper 2007-033.Google Scholar
Cabrales, A. and Sobel, J. (1992) On the limit points of discrete selection dynamics. Journal of Economic Theory 57(2), 407–419.CrossRefGoogle Scholar
Carlton, D.W. (1983) The location and employment choices of new firms: An econometric model with discrete and continuous endogenous variable. Review of Economics and Statistics 65(3), 440–450.CrossRefGoogle Scholar
Cohen, J. P. and Paul, C. J. M. (2004) Public infrastructure investment, interstate spatial spillovers, and manufacturing costs. Review of Economics and Statistics 86(2), 551–560.CrossRefGoogle Scholar
Commendatore, P., Kubin, I. and Petraglia, C. (2008) Productive public expenditure in a new economic geography model. Économie Internationale 114(2), 133–160.Google Scholar
Commendatore, P., Kubin, I., Petraglia, C. and Sushko, I. (2014) Regional integration, international liberalisation and the dynamics of industrial agglomeration. Journal of Economic Dynamics and Control 48, 265–287.CrossRefGoogle Scholar
Coughlin, C. C., Terza, J. V. and Arromdee, V. (1991) State characteristics and the location of foreign direct investment within the United States. Review of Economics and Statistics 73(4), 675–683.CrossRefGoogle Scholar
D’Aspremont, C. and Jacquemin, A. (1988) Cooperative and noncooperative R&D in duopoly with spillovers. The American Economic Review 78(5), 1133–1137.Google Scholar
Dumont, M., Rayp, G. and Willemé, P. (2006) Does internationalization affect union bargaining power? An empirical study for five EU countries. Oxford Economic Papers 58(1), 77–102.CrossRefGoogle Scholar
Ellison, G. and Glaeser, E. L. (1997) Geographic concentration in U.S. manufacturing industries: A dartboard approach. Journal of Political Economy 105(5), 889–927.CrossRefGoogle Scholar
Ellram, L.M. (2013) Offshoring, reshoring and the manufacturing location decision. Journal of Supply Chain Management 49(2), 3–5.CrossRefGoogle Scholar
Ellram, L. M., Tate, W. L. and Petersen, K. J. (2013) Offshoring and reshoring: An update on the manufacturing location decision. Journal of Supply Chain Management 49(2), 14–22.CrossRefGoogle Scholar
Fishman, C. (2012) The insourcing boom. The Atlantic. https://www.theatlantic.com/magazine/archive/2012/12/the-insourcing-boom/309166/ Google Scholar
Flores, R. and Aguilera, R. V. (2007) Globalization and location choice: An analysis of US multinational firms in 1980 and 2000. Journal of International Business Studies 38(7), 1187–1210.CrossRefGoogle Scholar
Hamilton, W. D. (1970) Selfish and spiteful behaviour in an evolutionary model. Nature 228, 1218–1220.CrossRefGoogle Scholar
Hofbauer, J. and Sigmund, K. (2003) Evolutionary game dynamics. Bulletin (New Series) of the American Mathematical Society 40(4), 479–519.CrossRefGoogle Scholar
Ihara, R. (2008) Transport costs, capital mobility and the provision of local public goods. Regional Science & Urban Economics 38(1), 70–80.CrossRefGoogle Scholar
Jaffe, A. B., Trajtenberg, M. and Henderson, R. (1993) Geographic localization of knowledge spillovers as evidence by patent citations. The Quarterly Journal of Economics 108(3), 577–598.CrossRefGoogle Scholar
Justman, M., Thisse, J.-F. and Ypersele, T. (2002) Taking the bite out of fiscal competition. Journal of Urban Economics 52(2), 294–315.CrossRefGoogle Scholar
Keen, M. and Marchand, M. (1997) Fiscal competition and the pattern of public spending. Journal of Public Economics 66(1), 33–53.CrossRefGoogle Scholar
Krugman, P. (1991) Increasing returns and economic geography. Journal of Political Economy 99(3), 483–500.CrossRefGoogle Scholar
Mansfield, E. (1988) The speed and cost of industrial innovation in Japan and the United States: External vs. internal technology. Management Science 34(10), 1157–1168.CrossRefGoogle Scholar
Mariotti, S., Piscitello, L. and Elia, S. (2010) Spatial agglomeration of multinational enterprises: The role of information externalities and knowledge spillovers. Journal of Economic Geography 10(4), 519–538.CrossRefGoogle Scholar
Marshall, A. (1892) Elements of economics of industry. London: Macmillan. Martin, P. and C. A. Rogers (1995) Industrial location and public infrastructure. Journal of International Economics 39(3–4), 335–351.Google Scholar
Maurer, B. and Walz, U. (2002) Regional competition for mobile oligopolistic firms: Does public provision of local inputs lead to agglomeration? Journal of Regional Science 40(2), 353–375.CrossRefGoogle Scholar
Meager, N. and Speckesser, S. (2011) Wages, productivity and employment: A review of theory and international data. Technical Report 1, Institute for Employment Studies.Google Scholar
Oates, W. E. (1995) The invisible hand in the public sector: Interjurisdictional competition in theory and practice. Working paper, University of Maryland, College Park, Department of Economics.Google Scholar
Porter, M. E. and Rivkin, J. W. (2012) Choosing the United States. Harvard Business Review 90(3), 80–91.Google Scholar
Ranjan, P. (2013) Offshoring, unemployment, and wages: The role of labor market institutions. Journal of International Economics 89(1), 172–186.CrossRefGoogle Scholar
Rosenthal, S. S. and Strange, W. (2003) Geography, industrial organization, and agglomeration. Review of Economics and Statistics 85(2), 377–393.CrossRefGoogle Scholar
Schelling, T. C. (1973) Hockey helmets, concealed weapons, and daylight saving: A study of binary choices with externalities. Journal of Conflict Resolution 17(3), 381–428.CrossRefGoogle Scholar
Trionfetti, F. (1997) Public expenditure and economic geography. Annales d’Économie et de Statistique 47, 101–120.CrossRefGoogle Scholar
Trionfetti, F. (2001) Public procurement, market integration, and income inequalities. Review of International Economics 9(1), 29–41.CrossRefGoogle Scholar
van Ark, B. (1995) Manufacturing prices, productivity, and labor costs in five economies. Monthly Labor Review 118, 56–72.Google Scholar