We present a factor-proportions trade model in which heterogeneous firms can offshore intermediate inputs subject to fixed offshoring costs. Low-productivity firms produce all inputs domestically. Sufficiently productive firms offshore skill-intensive inputs to skill-abundant countries and labor-intensive inputs to labor-abundant countries. Differently from the traditional versions of factor-proportions trade theory, Heckscher-Ohlin forces operate at the within-industry level, leading to endogenous variation in domestic skill intensity across firms.
Using French firm-level data for the years 1996 to 2007, we provide empirical support for the factor-proportions channel through which reductions in offshoring costs to labor-abundant countries have increased firm-level skill intensities of French manufacturers. (Coauthors A. Cunat, H. Fadinger, C. Fons-Rosen.)

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