Consider an Offshoring Model of Reverse FDI in Which Foreign

question 85

Short Answer

Consider an offshoring model of reverse FDI in which Foreign offshores skilled labor activities to Home because Home's skilled labor has a lower relative wage than Foreign's skilled labor. Also assume that the costs of capital and trade are uniform across production activities.
I. Will Foreign's offshored production activities be high or low on the value chain for a given product?
II. Suppose that Foreign uniformly increases its tariff level, effectively increasing the cost of importing all goods and services from abroad. How does this affect the slicing of the value chain?

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