Most debates concerning outsourcing offshore in recent years have been politically oriented and based on casual observations. The purpose of this paper is to provide a clear economic understanding of the subject and to present offshoring in the context of globalization and in a more integrated world economy.
This paper is designed in a coherent way to provide the reader with an overview, scope, benefits, and costs of outsourcing offshore and suggest some appropriate policies to navigate in a globally interdependent and competitive environment.
Outsourcing offshore is largely irreversible and the USA or other countries must invest heavily in ways to boost domestic workers' productivity and to manage workers' transitions to more competitive employment. This paper also provides evidence that, in the long run, outsourcing offshore is beneficial for the economy as a whole.
This paper delineates that outsourcing offshore is consistent with the theory of comparative advantage and value maximizing objectives of firms. It also provides insights for politicians and casual observers about critical aspects of outsourcing offshore.
