From Local to Global: Offshoring and Asset Prices

Abstract

Industries differ in the extent to which they can offshore their production. I document that industries with low offshoring potential carry a sizeable risk premium compared with industries with high offshoring potential, suggesting that the possibility to offshore affects industry risk. A two-country dynamic trade model in which offshoring allows firms to secure market share against foreign competitors can rationalize the empirical findings. This paper was accepted by Gustavo Manso, finance.