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A North–South model of outsourcing and growth

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  • Yuki Saito

Abstract

In this paper, I formulate a simple North–South R&D‐based growth model where final goods firms in the North endogenously determine the range of international outsourcing of intermediate goods to the South. I show that a fall in the trade cost (through trade liberalization) of intermediate goods in the North: (i) reduces the wage of the North relative to that of the South; (ii) increases the outsourced variety of intermediate goods in the North; and (iii) stimulates Northern R&D activity and economic growth in both countries. By conducting welfare analysis, I also show that a decline in the trade cost of intermediate goods in the North improves welfare in the South more than in the North.

Suggested Citation

  • Yuki Saito, 2018. "A North–South model of outsourcing and growth," Review of Development Economics, Wiley Blackwell, vol. 22(3), pages 16-35, August.
    • Handle: RePEc:bla:rdevec:v:22:y:2018:i:3:p:e16-e35
    DOI: 10.1111/rode.12382
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