Economics of Offshore IT Outsourcing: An International Trade Perspective

Abstract

In recent times, offshore outsourcing of Information Technology (IT) products and services, including software development and maintenance activities, has been an issue of much controversy in the United States, with popular sentiment being against outsourcing in the mass media. Is offshore outsourcing really bad for the US economy? If yes, why did so many US companies, including IT companies, start outsourcing to begin with and still continue to do so? For that matter, why doesn’t the federal government simply ban it as a national policy? To provide some possible answers to these questions, this paper examines the issue of offshore outsourcing from the perspectives of international trade theory and the unique cost characteristics of “information goods”.