International migration, outsourcing, and Italian industrial districts

The international outsourcing of production and the flows of migration are generally analyzed in the literature as independent phenomena. This paper draws attention to some possible interactions between the two. From the point of view of individual firms, both the employment of immigrants and the outsourcing of production can represent useful strategies to curb the costs of labor and satisfy the tight constraints imposed by the international markets. The evidence provided in the paper shows that, while most of the developed economies are increasingly involved in outsourcing activities, many small and medium sized exporting firms of the Italian industrial districts are using low-skilled immigrant labor instead of outsourcing production. For a country as a whole, however, the choice of one or the other strategy can have significantly different implications in terms of international specialization and economic growth. These implications are discussed in a model of growth and international trade. The model’s main prediction is that the utilization of the unskilled immigrant labor in the manufacturing sector of the advanced countries tends to drive their specialization towards the low-skilled intensive sectors and to reduce their long-run growth rate.