Foreign Investment, Outsourcing and Relative Wages

Robert Feenstra and Gordon Hanson

No 5121, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In this paper we examine the reduction in the relative employment and wages of unskilled workers in the U.S. during the 1980's. We argue that a contributing factor to this decline was rising imports reflecting the outsourcing of production activities. In a theoretical model, we show that any increase in the Southern capital stock relative to that of the North, or neutral technological progress in the South, will increase the relative wage of skilled workers in both countries due to a shift in production activities to the South. Corresponding to this change in the relative wage is an increase in the price index of Northern activities within each industry, relative to that of the South. We confirm that this change in relative prices occurred for the U.S. and other industrialized countries relative to their trading partners. We also estimate that 15-33% of the increase in the relative wage of nonproduction (or skilled) workers in the U.S. during the 1980's is explained by rising imports.

JEL-codes: F14 F21 (search for similar items in EconPapers)
Date: 1995-05
Note: ITI
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (92)

Published as Political Economy of Trade Policy: Essays in Honor of Jagdish Bhagwati, MIT Press. 1996, pp.89-128.
Published as Feenstra, Robert C. and Gordon H. Hanson. "Foreign Direct Investment And Relative Wages: Evidence From Mexico's Maquiladoras," Journal of International Economics, 1997, v42(3/4), 371-393.

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Working Paper: Foreign Investment, Outsourcing and Relative Wages (1995)
Working Paper: Foreign Investment, Outsourcing and Relative Wages (1995)
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