Offshoring Barriers, Regulatory Burden and National Welfare

Bandyopadhyay, Subhayu; Basu, Arnab K.; Chau, Nancy H.; Mitra, Devashish

doi:10.20955/wp.2018.003

Working Paper

Offshoring Barriers, Regulatory Burden and National Welfare

Abstract: We present a model which considers both regulatory burden of offshoring barriers and possible terms of trade gains from such barriers. Non-tariff barriers are shown to be unambiguously welfare-reducing, and tariff barriers raise welfare only when associated terms-of-trade gains exceed resulting regulatory burdens, in which case there is a positive optimal offshoring tax. Otherwise, free trade is optimal. Welfare reductions from an offshoring tax are more likely with several developed nations engaging in offshoring. We derive and characterize the Nash equilibrium in such a case.

Keywords: Offshoring tax; labor markets; terms of trade;

JEL Classification: F1; H8;

https://doi.org/10.20955/wp.2018.003

Status: Published in Indian Economic Review