Outsourcing and the US Economy

analytical Essay
2350 words
2350 words

Outsourcing – Don't Get Bangalored?

As the world has gotten “smaller” in terms of trade, outsourcing has become a hot topic in much political and economic debate in the United States.

An Associated Press-Ipsos poll in May 2004, found that 69 per cent of Americans thought that outsourcing hurts the US economy while only 17 per cent thought it helped . President Bush’s chief economic advisor Greg Mankiw has stated “outsourcing…is something that we should realize is probably a plus for the economy in the long run” . While John Kerry has emphasized, that he is going to stop the outsourcing of American job . With the presidential election coming up, and the candidates giving mixed signals about the effects of outsourcing, it could turn out to be a decisive issue. A recent poll said 22 per cent considered outsoursing somewhat important while 68 per cent said it was very important . Not to astray, for many years Americans have witnessed the outsourcing of labour-intensive production, such as manufacturing. And the US economy has actully gained from it, in terms of higher productivity. But on the other hand, for many Americans outsourcing posses a real threat. However, in recent years services, which earlier was characterized as non-tradable, are also outsourced. As developed countries, like India and China, are able to offer cheap skilled labour surely there is a great enticement for US firms to move such services abroad, thus shifting jobs abroad. Where will that leave the US and its skilled workers – are they in a sense getting Bangalored?

In this paper, I will present evidence that argues both for and against outsourcing.

I will first point out main points of Jagdish Bhagwati’s paper “The Muddles over Outsourcing” and sup...

... middle of paper ...” By Jagdish Bhagwati, Arvind Panagariya and T.N. Srinivasan

To be published in The Journal of Economic Perspectives, Fall 2004

“Globalization of IT Services and White Collar Jobs: The Next Wave of Productivity Growth” By Catherine L. Mann From Institute For International Economics


““Offshoring” Service Jobs: Bane or Boon – and What to Do?” By Lael Brainard and Robert E. Litan From The Brookings Institution – Policy Brief #132 April 2004

“Nagging doubts about the benefits of globalization, and a look at the evidence”

Economic focus – Trade disputes Class handout

“Immiserizing Trade: A Theoretical Note” By P.A. Black From The South African Journal of Economics, June 2002

In this essay, the author

  • Explains that outsourcing has become a hot topic in political and economic debate in the united states as the world has gotten "smaller" in terms of trade.
  • Analyzes how a 2004 ap-ipsos poll found that 69 percent of americans thought outsourcing hurt the us economy while only 17 percent thought it helped.
  • Points out jagdish bhagwati's paper "the muddles over outsourcing" and supports it with other mainstream economists' views on outsourcing.
  • Outlines paul samuelson's paper "where ricardo and mill rebut and confirm arguments of mainstream economists supporting globalization" and introduces the theory of immiserizing growth.
  • Explains that forrester estimates that outsourced us jobs will grow from about 400,000 in 2004 to 3.3 million by 2015 which seems quite significant.
  • Opines that bhagwati's paper the muddles over outsourcing is essential to view outsourcing of services as a traditional good and treat it as just that.
  • Analyzes how trade tends to create jobs in high-wage industries in which the us exports and reduce jobs.
  • Explains that local diminishing returns give a bowed ppf, while global countries are too small to affect prices. trade then gives constant returns, which is seen by the linear consumption function.
  • Analyzes how cathrine mann predicts a new wave of it related growth with outsourcing of software and it services. lael brainard and robert e. litan agree that outsourcing will benefit the us.
  • Opines that not all economists agree with paul samuelson's argument that outsourcing can have negative consequences.
  • Argues that the mainstream belief that all forms of free trade is beneficial, at least in the long run, is false.
  • Explains that outsourcing may lead to losses formulated by samuelson and the theory of immiserizing growth developed by bhagwati.
  • Argues that immiserizing growth suggests that gains from trade are not given. export biased growth can make a country worse off than it was before it engaged in trade.
  • Explains that resource rich countries like iraq specializing in production of oil for export purposes could lead to a fall in its price and deterioration in terms of trade.
  • Explains that a worse term of trade does not always equal immiserizing growth.
  • Concludes that outsourcing can be beneficial to the us and this new kind of trade may generate even greater gains. china has the potential to turn the standard theory upside down.
  • Analyzes how paul samuelson's "where ricardo and mill rebut and confirm arguments of mainstream economists supporting globalization" will be published in journal of economic perspectives.
  • Opines that globalization of it services and white collar jobs: the next wave of productivity growth.
  • Describes lael brainard and robert e. litan's "offshoring" service jobs: bane or boon – and what to do?"
  • Analyzes p.a. black's "immiserizing trade: a theoretical note" from the south african journal of economics, june 2002.
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