Offshoring and Skill-upgrading in French Manufacturing: A Heckscher-Ohlin-Melitz View

• Authors: Christian Fons-Rosen.
• BSE Working Paper: 110319 | October 15
• Keywords: Heterogeneous Firms , off-shoring , firm-level factor intensities , Heckscher-Ohlin
• JEL codes: F11, F12, F14
• Heterogeneous Firms
• off-shoring
• firm-level factor intensities
• Heckscher-Ohlin

We present a factor-proportions trade model in which heterogeneous firms can offshore intermediate inputs subject to fixed offshoring costs. In the skill-abundant country, high- productivity firms offshore a larger range of labor-intensive inputs to the labor-abundant countries than low-productivity firms. Differently from the traditional versions of factor-proportions trade theory, Heckscher-Ohlin forces operate at the within-industry level, leading to endogenous variation in skill intensity across firms that is positively correlated with firm productivity. Using French firm-level data for the years 1996 to 2007, we provide empirical support for the factor proportions channel through which offshoring to labor-abundant countries affects the firm-level skill intensities of French manufacturers.