The Impact of Offshoring on the U.S. Economy

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Off-shoring is the establishment of business operations outside national boundaries. The process of moving business outside these boundaries is to garner an advantage either through tax breaks, lower wages, lower transportation cost and/or relaxed regulations ("Offshore definition," 2014). Many firms either branch out as a horizontal multinational or vertical multinational. Horizontal multinational’s produce the same good or services as abroad. This foreign direct investment (FDI) is done to strategically place production closer to the target market. Doing this provides advantages surrounding transportation cost while enhancing learning associated with local needs. A vertical multinational is one that fragments a portion of its good to take advantage of lower cost (i.e. cheap labor). Markusen and Maskus found horizontal multinational replaces trade whereas, a vertical multinational positively correlates with trade (Markusen & Maskus, 2001).

In the U.S., critics of off-shoring argue, it eliminates jobs and exploits poor conditions in low wage countries. Others contend this practice has drained public tax coffers; eroding cash strapped Social Security, Medicare, workers compensation and other payroll-deduction funds (Konrad, 2004). Proponents of off-shoring believe it improves employment opportunities and overall domestic wealth. Their rationale, allowing other countries to produce and export complementary/intermediate products into the U.S., allows the U.S. to focus resources and capital on “higher” value added steps within the overall value chain. Higher value added steps, create jobs that pay more and make better use of resources. Greater, more effective utilization of resources enhances the nation’s overall w...

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...average of 2.5%. This continued growth supports the overall economy has not be negatively impacted by increased off-shoring activities. (“Trade stats express,” 2014)

Works Cited

Gerber, J. (2011). International economics. (5th ed.). Upper Saddle River, NJ: Prentice

Konrad, R. (2004, April 9). Offshoring jobs could drain public coffers, critics warn. The Florida Times Union. Retrieved from

Markusen, J., & Maskus, K. (2001). General-equilibrium approaches to the multinational firm: A review of theory and evidence. Retrieved from website: files/GeneralEquilibrium.pdf

Offshore definition. (2014). Retrieved from

Trade stats express. (2014, April 10). Retrieved from

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