Oshoring and Directed Technical Change

We study the short- and long-run implications of oshoring on innovation, technology adoption, wage and income inequality in a Ricardian model with directed technical change. In our model, pro…t maximization determines both the extent of oshoring and the direction of technological progress. A fall in the cost of oshoring induces technical change with an ambiguous factor bias. When the initial oshoring cost is high, an increase in oshoring opportunities triggers a transition with falling real wages for unskilled workers in the West, skill-biased technical change and rising skill premia worldwide. When the oshoring cost is su¢ ciently low, instead, further increases in oshoring opportunities induce technical change biased in favor of the unskilled workers and may lower the skill premium. Although oshoring improves the welfare of workers in the East, it may bene…t or harm unskilled workers in the West depending on parameters, the level of oshoring and the equilibrium growth rate.