Outsourcing is not a threat

Raghuram G Rajan, economic counsellor and director of the IMF Research Department and Shang-Jin Wei , head of the research department's Trade Unit write in Business Times Asia [The non-threat that is outsourcing ]: According to the article every decade or so, developed countries develop a crisis of confidence that also along the lines of Election Years. For example in 1980s, it was fear of Japan and now it is fear of India during the election times.

First, consider the amount of 'insourcing', that is, the value of business services exported by a country like the US. Clearly, this is considerable - think of all the high-priced business consultants and lawyers in rich countries offering their services to the rest of the world.



What is noteworthy, however, is that in each of the past 10 years, the value of US insourcing has been greater than that of US outsourcing! This is true even though the US has been running a trade deficit and an overall current account deficit.



Most other rich economies also run a surplus in these service categories. None of this should be surprising as the rich countries tend to do high-value-added service activities relatively better than the rest of the world. In fact, the US has the largest dollar surplus of insourcing over outsourcing in computer, information, and business services (at US$21 billion in 2001). The second-largest surplus country, by the way, is not India, but the UK.



Put another way, if every country decided to put up barriers against outsourcing, the output of developed countries would fall far more than that of developing countries.

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