Service Trade, Offshore Production, and Wage Inequality
Chu Ping Lo, Su-Ying Hsu

A simple North-South model is presented to analyze the relation of offshore production and service trade. It shows that the South attracts more offshore activities from the North when it is more open for service trade; however, wage inequality between skilled and unskilled labor rises not only in the manufacturing sector but also in the business service sectors in both country. This model also implies that trade balance in the manufacturing sector in the North(South) worsens(improves) while that of the business service sector improves(worsens) with offshore production.

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