Innovation and Wage Effects of International Outsourcing
European Economic Review
Posted: 8 Feb 1999
We study the role of increased outsourcing of production to a low wage country on relative wages across countries and innovation incentives. In particular, we examine the following causal forces behind an increase in the extent of international outsourcing: 1) a reduction in the resource requirement in adapting technology relative to improving products, 2) an expansion in the portion of production that can be outsourced, 3) an increase in production taxes in the North, 4) an increase in production subsidies in the South, and 5) an increase in the subsidy to adapting technologies. Each of these causal forces generates a lower relative wage and a faster rate of innovation, in addition to a greater extent of international outsourcing.
Note: This is a description of the paper, and not the actual abstract.
JEL Classification: F21, F43, O31, O34
Suggested Citation: Suggested Citation