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Outsourcing and Wage Inequality in a Dynamic Product Cycle Model

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Author Info
Selin Sayek
Fuat Sener

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Abstract

This paper constructs a dynamic North-South trade model with outsourcing and endogenous innovation. Production of high quality goods is first performed in the North (Northern phase), then split between the North and the South (Outsourcing phase), and finally shifted to the South (Southern phase). This cycle is reignited whenever a Northern firm innovates a higher quality product. We find that an increase in the fraction of outsourced production raises the Northern skill premium unambiguously, while raising the Southern skill premium if and only if the skill intensity of outsourced production is higher than that of local Southern production. Copyright © 2006 The Authors; Journal compilation © 2006 Blackwell Publishing Ltd.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-9361.2005.00297.x
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Publisher Info
Article provided by Blackwell Publishing in its journal Review of Development Economics.

Volume (Year): 10 (2006)
Issue (Month): 1 (02)
Pages: 1-19
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Handle: RePEc:bla:rdevec:v:10:y:2006:i:1:p:1-19

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  1. Devashish Mitra & Priya Ranjan, 2005. "Y2K and Offshoring: The Role of External Economies and Firm Heterogeneity," NBER Working Papers 11718, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Arti Grover, 2005. "Outsourcing Versus Foreign Direct Investment--A Welfare Analysis," Working papers 140, Centre for Development Economics, Delhi School of Economics. [Downloadable!]
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This page was last updated on 2009-12-19.

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