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Classical and Neoclassical Theories of Offshore Outsourcing

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Listed:
  • Deborah Winkler

    (World Bank)

  • William Milberg

    (Department of Economics, New School for Social Research)

Abstract

We compare neoclassical and classical theories of outsourcing. The former is premised on an improved international division of labor and predicts a rise in the return to skill. This contrasts with the classical model, which emphasizes the distribution of income between labor and capital and its implications for investment and economic growth. But the classical model needs amendment in the contemporary world: International capital mobility, wage stagnation and vertical specialization indicate that the direction of trade depends on both absolute and comparative advantage. Moreover, the classical perspective must be modified to allow for the leakage of profits into financial assets.

Suggested Citation

  • Deborah Winkler & William Milberg, 2011. "Classical and Neoclassical Theories of Offshore Outsourcing," Working Papers 1113, New School for Social Research, Department of Economics.
    • Handle: RePEc:new:wpaper:1113
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    File URL: http://www.economicpolicyresearch.org/econ/2011/NSSR_WP_132011.pdf
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    References listed on IDEAS

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    Cited by:

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