Trade, Investment and Migration as Substitutes
There are three core mechanisms in international economics. These mechanisms include: trade in goods, movement of capital (also known as outsourcing), and migration
There are three core mechanisms in international economics. These mechanisms include: trade in goods, movement of capital (also known as outsourcing), and migration of labor. All three of these mechanisms limit the power of policymakers to control economies. For instance, if tariffs increase, foreign investment will likely increase as well as companies seek to produce in the country to avoid higher tariffs. Similarly, if a country limits immigration, outsourcing will go up. If outsourcing is limited, immigration will likely increase. This video explores the economic impact of the movement of goods, capital and people.
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Is there a good reason to choose the term "outsourcing" here instead of "offshoring?" Here is the case for "offshoring" from Grossman and Rossi-Hansberg (2006): "We prefer the term 'oﬀshoring' to the more popular 'outsourcing,' because the latter suggests that tasks
formerly performed in-house are now being purchased at arms-length, whereas the former implies that tasks
formerly undertaken in one country are now being performed abroad. In other words, oﬀshoring includes
not only foreign sourcing from unrelated suppliers, but also the migration abroad of some of the activities
conducted by a multinational ﬁrm."