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Innovation and wage effects of international outsourcing

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  • Glass, Amy Jocelyn
  • Saggi, Kamal

Abstract

We investigate the effects of increased outsourcing of production to a low wage country. Such international outsourcing lowers the marginal cost of production and thus increases profits, creating greater incentives for innovation. A reduction in the resource requirement in adapting technology relative to improving products or an expansion in the portion of production that can be outsourced generates a greater extent of international outsourcing, a lower relative wage and a faster rate of innovation. An increase in production taxes in the North, production subsidies in the South, or a subsidy to adapting technologies has similar effects.
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  • Glass, Amy Jocelyn & Saggi, Kamal, 2001. "Innovation and wage effects of international outsourcing," European Economic Review, Elsevier, vol. 45(1), pages 67-86, January.
    • Handle: RePEc:eee:eecrev:v:45:y:2001:i:1:p:67-86
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    More about this item

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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