Bhagwati and Blinder: Offshoring of American Jobs

Jagdish Bhagwati and Alan Blinder discussed “Offshoring of American Jobs: What Response from U.S. Economic Policy?” at a Harvard symposium in 2007, with comments from Richard B. Freeman, Doug Irwin, Lori Kletzer and Robert Z. Lawrence. Those papers now appears as a book edited by Benjamin Friedman. Bhagwati and Blinder discussed offshoring last week on Bloomberg Radio (mp3).

Richard Cooper summarizes:

This stimulating collection, like the Harvard symposium that led to it, is built around Blinder’s strong and much-debated thesis that within two decades, 30-40 million U.S. jobs, mainly those in the services industries that require no direct contact between the provider and the customer, could be sent offshore — especially to India, where wages are low and English-speaking university graduates are plenty. Blinder argues that the United States should adapt its educational and labor policies to prepare for this possibility. Bhagwati, for his part, points out that offshoring is just one more dimension of an open trading system, which will produce higher living standards for Americans — and Indians. The contributors observe that this possibility will be similar in proportion to the adjustments that the U.S. economy has already made in past decades, particularly to the decline in manufacturing employment; that for a variety of reasons, not nearly so many jobs will move offshore; and that other countries will offshore some of their jobs to the United States.

The latter comment echoes Richard Baldwin’s argument that offshoring is more likely to be a two-way, intraindustry exchange than a one-way departure of jobs.

Whither single undertaking trade negotiations?

UCL’s WTO Scholars Forum raises an interesting question: Is the single undertaking model dead?

GATT and WTO negotiations for trade liberalisation have always aimed at comprehensive packages containing something for everyone. But in 1994 the Uruguay Round had to leave several topics over to be settled later. It took 9/11 and the financial slump to launch the already watered-down Doha Round which was further starved of substance and ambition in 2004 (and later). Despite this lack of ambition, the current Doha Agenda negotiations have still fractured, and bilateral and regional trade deals are proliferating.  Does this mean that all-encompassing global trade negotiations have become impossible? And what could emerge in their place?

The event is the evening of December 8 if you’re in London.

Giovanni Peri: “The Effect of Immigration on Productivity: Evidence from US States”

NBER WP 15507:

Using the large variation in the inflow of immigrants across US states we analyze the impact of immigration on state employment, average hours worked, physical capital accumulation and, most importantly, total factor productivity and its skill bias. We use the location of a state relative to the Mexican border and to the main ports of entry, as well as the existence of communities of immigrants before 1960, as instruments. We find no evidence that immigrants crowded-out employment and hours worked by natives. At the same time we find robust evidence that they increased total factor productivity, on the one hand, while they decreased capital intensity and the skill-bias of production technologies, on the other. These results are robust to controlling for several other determinants of productivity that may vary with geography such as R&D spending, computer adoption, international competition in the form of exports and sector composition. Our results suggest that immigrants promoted efficient task specialization, thus increasing TFP and, at the same time, promoted the adoption of unskilled-biased technology as the theory of directed technologial change would predict. Combining these effects, an increase in employment in a US state of 1% due to immigrants produced an increase in income per worker of 0.5% in that state

Amiti & Khandelwal: “Competition and Quality Upgrading”

NBER WP 15503:

How does competition affect innovation? We address this question by using a novel approach to measure quality — an important component of innovation — using highly disaggregated product data for a large set of countries.  Constructing an internationally comparable measure of quality enables us to separate the effect of reducing import tariffs, our measure of competition, on quality upgrading from other country level differences in competitive environments, and product demand shocks.  We base our analysis on recent theoretical frameworks that predict that the effect of competition on innovation depends on firms’ proximity to the world technological frontier.  As predicted by theory, we find that lower tariffs are associated with quality upgrading for products close to the world frontier; whereas lower tariffs discourage quality upgrading for varieties distant from the frontier.

Measuring distance

Neat:

The CEPII has built and made available two datasets providing useful data for empirical economic research including geographical elements and variables. A common use of these files is the estimation by trade economists of gravity equations describing bilateral patterns of trade flows…

Distance calculation requires information on geographical coordinates of at least one city in each of the country. The simplest measure of geodesic distance considers only the main city of the country, reported here with the English and French names, latitude and longitude. In most cases, the main city is the capital of the country. However, for 13 out of the 225 countries, we considered that the capital was not populated enough to represent the “economic center” of the country. For these countries, we propose the distances data calculated for both the capital city and the economic center…

There are two kinds of distance measures: simple distances, for which only one city is necessary to calculate international distances; and weighted distances, for which we need data on the principal cities in each country. The simple distances are calculated following the great circle formula, which uses latitudes and longitudes of the most important city (in terms of population) or of its official capital. These two variables incorporate internal distances based on areas provided in the geo_cepii.xls file. The two weighted distance measures use city-level data to assess the geographic distribution of population inside each nation. The idea is to calculate distance between two countries based on bilateral distances between the largest cities of those two countries, those inter-city distances being weighted by the share of the city in the overall country’s population.

Offshoring and the composition of home employment

At Vox, Sascha Becker, Karolina Ekholm, and Marc Muendler use firm-level data from Germany to assess how the job composition at home changes when firms offshore abroad:

How do offshoring firms reshape their domestic workforce? This column, using evidence from German multinationals, shows a positive correlation between offshoring and the firm’s proportion of highly educated workers. Offshoring firms have relatively more domestic jobs involving non-routine and interactive tasks. But offshoring is far from the only explanation for the shift towards more educated employees carrying out more advanced tasks.

More on Penn World Table data revisions

Highlights from NBER WP 15455, which I flagged last week:

How fast did Equatorial Guinea grow over the two and a half decades beginning in 1975? The natural place to turn to answer such a question is data from the Penn World Table (PWT), which is the most widely used source for cross-country comparisons for the level and growth rate of GDP. According to its latest available version (PWT 6.2) Equatorial Guinea is the second-fastest growing country among 40 African countries. However, according to its previous version (PWT 6.1), which was released four years before, Equatorial Guinea was the slowest growing country. Indeed, as table 1 shows, if one were to compile the list of the 10 fastest and slowest growing countries in Africa between 1975 and 1999, PWT 6.1 and PWT 6.2 would produce almost disjoint lists…

The variability of growth data has implications for the cross-country growth literature. Results based on annual data prove to be less robust across versions of the PWT than are results based on 10-year averages and/or levels of GDP. And results are sensitive to sample, especially the inclusion of small countries…

Plotting the data suggests that data quality might matter for revisions. The left-hand panel in figure 6 shows differences in 29-year annual average growth rates (1970—1999) for countries with data quality grades of A or B. The right-hand panel shows the same for countries with grades of C or D. All the major variation across versions of the table occurs in the countries with lower grades…

We have examined many of the leading papers in the growth literature based on PWT 5.6 or 6.1. In each case, we attempted to run exactly the same specifications and samples, but using version 6.2 of the table instead. This approach cannot prove that a particular set of results is right or wrong, but it may illustrate patterns in terms of what kind of results are more or less robust…

In all, we tested the robustness of 13 papers in the growth literature. Note that we did not check all specifications in all papers. Rather we concentrated on what appeared to us–or to others citing the work–as the “main” results. The lower part of Appendix table 2 lists nine papers for which we found basically no or small changes in results. In addition, there were more substantial changes for four papers: Ramey and Ramey (1995), Jones and Olken (2005), Hausmann, Pritchett, and Rodrik (2005), and Aghion, Howitt, and Mayer-Foulkes (2005).