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Outsourcing and Wage Inequality in a Dynamic Product Cycle Model


  • Selin Sayek
  • Fuat Sener


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.

Suggested Citation

  • Selin Sayek & Fuat Sener, 2006. "Outsourcing and Wage Inequality in a Dynamic Product Cycle Model," Review of Development Economics, Wiley Blackwell, vol. 10(1), pages 1-19, February.
  • Handle: RePEc:bla:rdevec:v:10:y:2006:i:1:p:1-19

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    References listed on IDEAS

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    Cited by:

    1. Arti Grover, 2005. "Outsourcing Versus Foreign Direct Investment--A Welfare Analysis," Working papers 140, Centre for Development Economics, Delhi School of Economics.
    2. Chen, Hung-Ju, 2015. "Intellectual property rights and skills accumulation: A product-cycle model of FDI and outsourcing," Journal of Macroeconomics, Elsevier, vol. 46(C), pages 328-343.
    3. Sener, Fuat, 2008. "R&D policies, endogenous growth and scale effects," Journal of Economic Dynamics and Control, Elsevier, vol. 32(12), pages 3895-3916, December.
    4. Devashish Mitra & Priya Ranjan, 2005. "Y2K and Offshoring: The Role of External Economies and Firm Heterogeneity," Working Papers 050605, University of California-Irvine, Department of Economics.
    5. Hung-Ju Chen, 2015. "Innovation and Intellectual Property Rights in a Product-cycle Model of Skills Accumulation," Review of International Economics, Wiley Blackwell, vol. 23(2), pages 320-344, May.
    6. Chen, Hung-Ju, 2015. "Innovation and imitation: effects of intellectual property rights in a product-cycle model of skills accumulation," MPRA Paper 65745, University Library of Munich, Germany, revised Apr 2015.
    7. Sener, Fuat & Zhao, Laixun, 2009. "Globalization, R&D and the iPod Cycle," Journal of International Economics, Elsevier, vol. 77(1), pages 101-108, February.
    8. Jiancai Pi & Yu Zhou, 2015. "The impacts of corruption on wage inequality and rural–urban migration in developing countries," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 54(3), pages 753-768, May.
    9. Kurokawa, Yoshinori, 2011. "Is a skill intensity reversal a mere theoretical curiosum? Evidence from the US and Mexico," Economics Letters, Elsevier, vol. 112(2), pages 151-154, August.
    10. Gao, Ting, 2007. "Trade costs, international production shifting, and growth," European Economic Review, Elsevier, vol. 51(2), pages 317-335, February.
    11. Wolf-Heimo Grieben & Fuat Sener, 2009. "Labor Unions, Globalization, and Mercantilism," CESifo Working Paper Series 2889, CESifo Group Munich.
    12. Sujata Basu, "undated". "R & D Sector Outsourcing, Human Capital Formation and Growth in the Context of Developed versus Developing Economies," Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi Discussion Papers 15-05, Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi, India.
    13. repec:eee:reecon:v:71:y:2017:i:3:p:564-587 is not listed on IDEAS
    14. Arijit Mukherjee & Yingyi Tsai, 2010. "International Outsourcing And Welfare Reduction: An Entry-Deterrence Story," Manchester School, University of Manchester, vol. 78(6), pages 647-659, December.
    15. Fatima, Syeda Tamkeen, 2014. "Off-Shoring and Wage Inequality: where do we stand?," IEE Working Papers 207, Institut fuer Entwicklungsforschung und Entwicklungspolitik, Ruhr-Universitaet Bochum.

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