Question

Trade in Tasks and the Grossman and Rossi-Hansberg (2008)
model
Grossman and Rossi-Hansberg (2008) present a simple extension to the Heckscher-Ohlin-
Samuelson model which allows firms to relocate the low-skilled labor-intensive parts of the
production process to a low-wage country. In other words, they present a simple model of
oshoring, intermediate input trade, or global value chains (GVCs). Besides the mathemat-
ical model, the authors also introduce the concept of trade in tasks, as they view production
as a chain of several tasks which have to be performed to arrive at the final product. In
this view, the low-skilled labor-intensive tasks of production are moved to the cheap offshore
destination country, whereas the high-skill intensive tasks remain onshore, i.e., in the high
wage country.

(b) What determines the offshoring cost of a particular task i? Discuss verbally and illustrate
graphically!

References
Grossman, G. M., and E. Rossi-Hansberg (2008): \Trading Tasks: A Simple Theory
of Offshoring," American Economic Review, 98(5), 1978{97.

Answer 1