Multi-Product Offshoring

In this paper, we incorporate offshoring of labor-intensive goods
in a model with multi-product firms, and explore its implications
in partial and general oligopolistic equilibrium. We identify
important aspects of this phenomenon and argue that improvements in
offshoring opportunities can affect the geographic organization of
a firm and its product range. Multi-product firms internalize
supply linkages (flexible manufacturing) and demand linkages
(cannibalization effect). In partial equilibrium, we find that more
products are produced offshore on a larger scale and firms expand
their product range with better prospects for offshoring. We
identify the cannibalization effect as an important transmission
mechanism within multi-product firms and show that the latter
effect hits domestic labor demand in addition to the well-known
relocation effect. Interestingly in general equilibrium these
effects lead to adjustments in domestic factor prices and may cause
a partial re-relocation of product lines.