Outsourcing: Opportunities and challenges for India and the USA
Abstract
The global outsourcing of services has become increasingly important in the debate over globalization. In India, the most high profile services exporter, GDP per capita increased rapidly between 2001 and 2006 in a climate of increasing services trade, with the export-oriented services sector responsible for greater shares of GDP growth. Despite its contributions to aggregate economic growth, there is no empirical examination of how these gains are distributed across the economy. At the same time, there are many fears in the USA that greater services imports will have detrimental effects on US wages and employment by displacing occupations whose activities are currently not tradable, but could become tradable in the future. While economic theory is useful in conceptualizing the problem of outsourcing, purely analytical approaches have not been able to address the questions being posed by policy makers. Therefore empirical methods are necessary. A global general equilibrium model was used to examine how the historical changes in India’s services trade affected factor incomes across different industries. The analysis concludes that factors of production in the urban-based services sector benefited from the services trade growth. At the same time outsourcing has hurt the incomes of the owners of capital in the rural and suburban based agriculture and manufacturing sectors, indicative of a widening of income inequality. Shifting the analysis to the USA, a panel data econometric analysis of US manufacturing industries between 1998 and 2004 found that historically, services imports have only had a small influence on the demand for skilled workers. Moving past historical changes, a USA focused specific-factors general equilibrium model was used to analyze how wages of different occupational groups will be affected if outsourcing increases enough to displace the maximum possible share of US employment. The US economy as a whole would grow, although most occupations that could be classified as tradable would suffer from wage declines. Legal workers would be an exception, and experience wage increases instead. Several nontradable occupational groups would benefit through wage gains, although a handful of labor types, including construction and transportation workers are projected to suffer from the growth of outsourcing.
Degree
Ph.D.
Advisors
Walmsley, Purdue University.
Subject Area
Economics|Agricultural economics|Labor economics|South Asian Studies
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