Fragmentation in Production, Vertical Integration and Wage Inequality: A Theoretical Note
AbstractDeveloping a three-sector and four-factor general equilibrium model, this paper offers an explanation of wage inequality in a vertically fragmented production structure typical of off-shore outsourcing to developing countries like China or India. The model characterizes a typical developing economy where intermediate good is produced using capital and local low-skilled worker, traditional sector uses unskilled worker to produce agricultural products and skilled worker works in tandem with intermediates to produce final goods for export. The model furnishes that wage dispersion could be explained theoretically in this specific-factor general equilibrium structure where factor returns are endogenously determined within a production structure with middle products. In particular, scenario analysis shows that increase in relative price of final good aggravates wage inequality, whereas opposite happens when price of intermediates and import-competing sector inflates. Skilling the unskilled and protecting the sector intensive in low-skilled could attenuate the adverse impact.
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 InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 47455.
Date of creation: 15 Dec 2012
Date of revision:
Publication status: Published in Modern Economy 3.6(2012): pp. 958-964
Wage Inequality; Fragmentation; Vertical Specialization; Specific Factor;
Find related papers by JEL classification:
- D5 - Microeconomics - - General Equilibrium and Disequilibrium
- D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
- F10 - International Economics - - Trade - - - General
- F11 - International Economics - - Trade - - - Neoclassical Models of Trade
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-06-16 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Nathalie Chusseau & Michel Dumont & Jo�l Hellier, 2008. "Explaining Rising Inequality: Skill-Biased Technical Change And North-South Trade ," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 22(3), pages 409-457, 07.
- Grossman, G.M. & Helpman, E., 2002.
"Outsourcing in a Global Economy,"
Papers, Princeton, Woodrow Wilson School - Public and International Affairs
218, Princeton, Woodrow Wilson School - Public and International Affairs.
- Gene M. Grossman & Elhanan Helpman, 2002. "Outsourcing in a Global Economy," NBER Working Papers 8728, National Bureau of Economic Research, Inc.
- Gene M. Grossman & Elhanan Helpman, 2002. "Outsourcing in a Global Economy?," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 1966, Harvard - Institute of Economic Research.
- Gene M. Grossman & Elhanan Helpman, 2002. "Outsourcing in a Global Economy," Working Papers, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics. 149, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics..
- Grossman, Gene & Helpman, Elhanan, 2002. "Outsourcing in a Global Economy," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3165, C.E.P.R. Discussion Papers.
- Ronald W. Jones, 1965. "The Structure of Simple General Equilibrium Models," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 73, pages 557.
- Sanyal, Kalyan K & Jones, Ronald W, 1982. "The Theory of Trade in Middle Products," American Economic Review, American Economic Association, American Economic Association, vol. 72(1), pages 16-31, March.
- Ronald Jones & Sugata Marjit, 2009. "Competitive trade models and real world features," Economic Theory, Springer, Springer, vol. 41(1), pages 163-174, October.
- Horgos, Daniel, 2007.
"Labor Market Effects of International Outsourcing: How Measurement Matters,"
Working Paper, Helmut Schmidt University, Hamburg
62/2007, Helmut Schmidt University, Hamburg.
- Horgos, Daniel, 2009. "Labor market effects of international outsourcing: How measurement matters," International Review of Economics & Finance, Elsevier, Elsevier, vol. 18(4), pages 611-623, October.
- Daniel Horgos, 2007. "Labor Market Effects of International Outsourcing: How Measurement Matters," SOEPpapers on Multidisciplinary Panel Data Research 58, DIW Berlin, The German Socio-Economic Panel (SOEP).
- Bridgman, Benjamin, 2012. "The rise of vertical specialization trade," Journal of International Economics, Elsevier, Elsevier, vol. 86(1), pages 133-140.
- Mary Amiti & Shang-Jin Wei, 2004.
"Fear of Service Outsourcing: Is It Justified?,"
NBER Working Papers
10808, National Bureau of Economic Research, Inc.
- Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001.
"The nature and growth of vertical specialization in world trade,"
Journal of International Economics, Elsevier,
Elsevier, vol. 54(1), pages 75-96, June.
- David Hummels & Jun Ishii & Kei-Mu Yi, 1999. "The nature and growth of vertical specialization in world trade," Staff Reports, Federal Reserve Bank of New York 72, Federal Reserve Bank of New York.
- Das, Gouranga, 2010. "Globalization, socio-institutional factors and North–South knowledge diffusion: Role of India and China as Southern growth progenitors," MPRA Paper 37252, University Library of Munich, Germany, revised 01 Aug 2011.
- Gouranga Das, 2009. "A hybrid production structure in trade: theory and implications," International Review of Economics, Springer, Springer, vol. 56(4), pages 359-375, December.
- Ronald W. Jones, 2000. "Globalization and the Theory of Input Trade," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 026210086x, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.