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?

---

Definitions:

Pain Reduction

The process or methods used to decrease or alleviate physical discomfort or pain.

Placebos

Inert substances or treatments that have no therapeutic effect, used as a control in testing new drugs or given to a patient for the psychological benefit rather than for any physiological effect.

Phi Phenomenon

The phi phenomenon is a visual illusion in which stationary objects shown in rapid succession, such as a string of lights, appear to be moving.

Stroboscopic Motion

An optical illusion where continuous motion is represented by a series of short or instantaneous samples, as seen in motion pictures.