General Conclusions of our model:
- Small country case: (cannot affect world prices)
Price of goods stays the same
(rel. supply does not change), cost of production falls, firms make
profits, more firms enter the industry, L-intensive industry grows (for our
particular country case), demand for labor increases, thus creating more jobs and higher wages.
- Large country case: (can affect world prices)
The process is the same as for a
small country, but has additional effects. When the Demand for Labor increases and creates growth in
an industry, the relative supply curve shifts. Outsourcing in the
import sector has the effect of
improving the terms of trade for the outsourcing country, through
effectively creating import-biased growth.
Click on this link to view the
economic analysis of
outsourcing
See "Globalization and the Open Economy" by Sven W. Arndt.
-by Tyler Hildebrand