Offshoring And Wage Inequality In Developing Countries
AbstractThe Heckscher-Ohlin model predicts that trade openness causes the skill premium to increase in skill-abundant developed countries, and to decrease in skill-scarce developing countries. Empirical evidence, however, shows that the skill premium declined in some developing countries, while others experienced an increase in wage inequality. This paper develops a North-South model, where firms produce a low-skilled and a high-skilled intensive good. The production of a unit of either good involves a continuum of L-tasks and H-tasks. The L-tasks can be performed by low-skilled workers, and the H-tasks can be performed by high-skilled workers. The Northern firms can produce the task in their headquarters, or offshore the task to the South. The results of the model suggest there is a threshold skill abundance level in the South, above which countries experience an increase in the skill premium after an improvement in the offshoring technology, and below which countries experience a decrease in the skill premium. The same pattern occurs with an improvement in the offshoring technology of tasks in the high-skilled and the low-skilled intensive industries. If wages in local production catch up with wages in the offshoring sector, offshoring does not impact wage inequality at a certain level of skill abundance. A threshold estimation, on 29 developing countries over the period 1982-2000, shows that there is a statistically significant skill abundance threshold, below which the coefficient on the relationship between offshoring and wage inequality is negative, and above which there is no impact of offshoring on wage inequality. Similar results are reached if offshoring is replaced by variables that proxy for the offshoring technology.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Chung-Ang Unviersity, Department of Economics in its journal Journal Of Economic Development.
Volume (Year): 35 (2010)
Issue (Month): 3 (September)
Task Trade; Skill Premium; Threshold Estimation;
Find related papers by JEL classification:
- F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- O34 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Intellectual Property Rights
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kyttack Hong).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.