Economists, including Paul Samuelson and Jagdish Bhagwati, vigorously debate whether offshore outsourcing in high-tech industries helps or harms the U.S. economy. The main issue is whether insourcing countries, such as China or India, will catch up with and eventually outcompete the U.S. Moreover, the dearth of off shore outsourcing data has hindered the study of the impact of offshore outsourcing. To explore the impact of offshore outsourcing, I examine how the heterogeneity of offshore outsourcing demand affects insourcing firms’ innovation choices and how these innovation choices connect with the technology-driven productivity growth of the insourcing industry.
Editor’s Note: a bit long and mathematical in spots…
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