Personally I would prefer local for many reasons. It is easier and often cheaper to hire from local colleges and universities, or even pick up some high school students. If their portfolio of work looks good generally the artwork they produce is presentable at a reasonable cost, they're happy because they can report that they worked on a game. Best case is you find someone with great skills who commits to work with you long term.
Hiring students/graduates is comparable to when you're outsourcing because you want cheap work... but it's apples and oranges to outsourcing because you want the highest quality work.
To add another perspective, we (GOATi) do outsourcing management for clients who want higher quality work than what they can do themselves, or equal quality with the flexibility that contractors give you (e.g. you can hire them for just a day/week/month as needed). We get clients from AAA to indie games, film/TV, etc, who want the best quality, not the cheapest price. From a US perspective, we're foreign... and from a local (Australian) perspective, we often sub-contract work out to foreigners too -- we send the work wherever the talent happens to be