Human Capital as a Basis of Comparative Advantage Equations in Services Outsourcing: A Cross Country Comparative Study

42 Pages Posted: 3 Aug 2006

See all articles by Shailey Dash

Shailey Dash

Institute for Integrated Learning in Management

Date Written: May 26, 2006

Abstract

International outsourcing of services has come to occupy an increasingly important part of international trade. Analytically services outsourcing is the export of services by a country to the outsourcing nation. Given this, the pattern of trade in these services would be decided in line with country specific comparative advantage equations. Since services are typically intensive in skilled labour and educated manpower, what matters for a country's comparative advantage in services is its resource base in terms of skilled and educated manpower. This is a cross country study which uses the intuitive logic of the Hecksher Ohlin model to determine comparative advantage for a sample of developed countries such as the US, that essentially constitute outsourcers, and developing nations such as India and China that carryout outsourcing. Different definitions of human capital are compared to identify comparative advantage. A key conclusions is that for services outsourcing, the definition of human capital needs to be restricted to secondary and particularly tertiary students rather than literacy. This is further validated by the significance of size of tertiary students in cross country equations estimating business service exports. Secondly, what matters for comparative advantage is the absolute size of the human capital base rather than in percentage terms.

Keywords: Services outsourcing, Comparative advantage, Heckscher -Ohlin, Cross country study

JEL Classification: F11, F16, F14

Suggested Citation

Dash, Shailey, Human Capital as a Basis of Comparative Advantage Equations in Services Outsourcing: A Cross Country Comparative Study (May 26, 2006). Available at SSRN: https://ssrn.com/abstract=921321 or http://dx.doi.org/10.2139/ssrn.921321

Shailey Dash (Contact Author)

Institute for Integrated Learning in Management ( email )

16, Knowledge Park - II
Greater Noida, IN Uttar Pradesh 201 306
India
9350837459 (Phone)

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