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Outsourcing and Wage Inequality in a Dynamic Product Cycle Model
Author(s) -
Sayek Selin,
Şener Fuat
Publication year - 2006
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/j.1467-9361.2005.00297.x
Subject(s) - outsourcing , production (economics) , product (mathematics) , quality (philosophy) , wage , economics , wage inequality , phase (matter) , inequality , labour economics , production cycle , offshoring , business , microeconomics , marketing , engineering , geometry , mathematics , organic chemistry , mathematical analysis , philosophy , chemistry , epistemology , manufacturing engineering
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.