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Holger Görg and Aoife Hanley

In this chapter the authors examine the link between transport costs and offshoring activity. They first discuss the measurement of offshoring and use aggregate data to describe recent developments. They then look at some theoretical contributions that consider the implications of transport costs for offshoring, and introduce the view that transport and other services are necessary to connect production stages located in different countries. The chapter then looks at more formal models that deal with the choice of how to organize production, where transport involves variable costs. The authors start with the choice between exporting and horizontal or vertical FDI, as well as models with more ‘complex’ internationalization strategies. They then examine the implications of offshoring due to falling transport costs for labour market outcomes. Finally, they discuss some empirical evidence on the link between transport and other trade costs for offshoring.