The transitional impacts of material and service offshoring

Abstract

The recent expansion of offshoring intermediate services has given rise to public fears and a possible pullback from a liberal trading system. Modeling and estimating intermediate offshoring is complicated since the shock is further down the production process. This paper incorporates the necessary transmission mechanisms into a data-intensive CGE model for the State of Colorado to estimate the current and future impacts of continuing a liberal trade policy for offshoring intermediates. The results indicate that while the overall effects of offshoring are small and positive, the future directions of service offshoring are projected to cause sizable domestic job destruction and displacement. Policies may have to be implemented to retrain domestic workers who face job loss or even consider curtailing future offshoring opportunities.