TWO ESSAYS ON OFFSHORING AND OUTSOURCING
Open Access
- Author:
- Lu, Wenzhuo
- Graduate Program:
- Economics
- Degree:
- Doctor of Philosophy
- Document Type:
- Dissertation
- Date of Defense:
- May 13, 2019
- Committee Members:
- James R. Tybout, Dissertation Advisor/Co-Advisor
James R. Tybout, Committee Chair/Co-Chair
Jonathan Eaton, Committee Member
Mark John Roberts, Committee Member
Zhe Wang, Outside Member - Keywords:
- heterogenous labour
matching
sorting
income distribu- tion
international trade
offshoring
taxation.
heterogenous labor
matching
sorting
income distribution
international trade
offshoring
taxation
outsourcing
innovation
trade liberalization - Abstract:
- Chapter 1: Tax, Offshoring, and Income Distributions I study the distributional consequences of income tax policy in a world with two countries and two heterogeneous factors of production. Productivity in each production unit reflects the ability of the manager and the abilities of the workers, with the complementarity between the two. I show how changes of relative wages, generated by one country's choice of income tax policy, affect the reallocation of managers across the border, the matching of workers and managers, the distributions of wages and firms' profits, and national welfare in two countries. I find that when the identity of two production factors is endogenous, the optimal income tax rate in the South is slightly lower than the globally efficient individual tax rate. Chapter 2: Globalization, Innovation, and Firm Dynamics Outsourcing has led to significant cost savings, but, less obviously, it has changed importing firms' incentives to invest in innovation. In particular, with better access to foreign inputs, importing firms use cheaper imported inputs as a substitute for self-made inputs, and thus have less incentive to develop their own in-house varieties. In this paper, I first show that Chinese firms associated with lower $\textit{input}$ tariffs undertake less innovation. I then develop, estimate, and simulate a forward-looking model that captures this margin of adjustment and show how it responds to the changing costs of outsourcing. Counterfactual exercises show that a permanent reduction in trade-variable costs decreases domestic innovation participation rate, and this negative impact will accumulate and grow over time even as far into the future as twenty years later.