We investigate the issue of offshoring in a model of two countries and one sector of increasing returns to scale. Our model uncovers that in a setting of footloose capital, offshoring occurs and evolves in an inverted-U pattern when transport costs decline. This result can explain China's...

We investigate the issue of offshoring in a general-equilibrium model of two countries and one sector of increasing returns to scale. Our model uncovers that offshoring occurs and endogenously evolves in a bell-shaped pattern when trade costs decline, explaining some stylized facts in developed...