Exports and offshoring: Theory and evidence from China

The rapid growth of offshoring has become a dominant feature of the international economy. In order to better understand offshoring, there are many interesting questions that need to be addressed. For example, how offshoring is organized and what are the impacts of offshoring on the labor market. On the other hand, financial frictions may arise from the firm's access to external finance. How does financial frictions affect firm's export behavior is not well understood yet. Using very disaggregated data from China, I address these questions in the three chapters of this dissertation. Chapters 1 studies the organizational form of offshoring and Chapter 2 studies the impacts of credit constraints on firms' export behavior. In Chapter 3 I examines how offshoring and ordinary trade affect the employment and wage in the labor market.;Chapter 1 studies the organizational form of offshoring. Between 1997 and 2008, Chinese offshoring within multinationals (intrafirm offshoring) increased much more rapidly than offshoring through subcontracting (arm's length offshoring). This development in the organizational form of Chinese offshoring presents a puzzle, since it runs contrary to the pattern predicted by existing contract theory based models. To explain recent trends in Chinese offshoring, this paper incorporates Cremer-Garicano-Prat communication costs in Grossman-Rossi-Hansberg's (2008) model of offshoring. In particular, I develop a model in which foreign subsidiaries of multinationals benefit from lower communication costs when they perform offshored tasks, but must pay an efficiency wage premium compared with arm's length subcontractors. The model predicts that reductions in offshoring costs lead to a larger increase of the intrafirm offshoring share for industries that are more communication-intensive. To test this theoretical hypothesis, I examine how reductions in offshoring costs that are due to the establishment of export processing zones affect the organization of Chinese offshoring. I find strong evidence in support of the model's prediction: while offshoring cost reductions have an insignificant effect on the intrafirm offshoring share for the least communication-intensive industries, similar reductions in offshoring costs are associated with an 8 percent increase in the intrafirm offshoring share for the most communication-intensive industries.;Chapter 2, a joint work with Miaojie Yu, studies how a firm's credit constraints, jointly with its productivity, affect its export decisions. We embed the firm's credit constraints into a Melitz-type general-equilibrium model by making the probability of the success of firm-specific projects endogenous. We show that, all else equal, firms are more likely to enter the export market (extensive margin) and export more (intensive margin), (1) if the probability of the success of the firm's project is higher, which provides the firm easier access to external finance from financial intermediaries; (2) or if the firm has alternative sources for obtaining funds, aside from financial intermediaries. We test these theoretical hypotheses using firm-level data from Chinese manufacturing industries and find strong evidence supporting the predictions of the model after controlling for the possible endogeneity issue.;Chapter 3, a joint work with Weijun Hu, examines the impact on U.S. labor market of the recent surge of imports from China, especially imports due to offshoring. Using occupation data from BLS, we study the movement of labor between the manufacturing and service sectors as such a channel for the shock from globalization to spread to the whole economy. We find that an occupation's increasing exposure to offshoring import from China: (1) causes workers in this occupation to move from the manufacturing sector to the service sector, (2) reduces this occupation's share in the total employment, and (3) within the occupation increases the relative wage between manufacturing and service for low skilled workers and decreases the relative wage for high skilled workers.