Abstract
This paper constructs a North-South endogenous growth model where final good producers in the North determine whether they outsource the production of intermediate goods to the South or not. When the final good producers outsource the production of intermediate goods to the Northern firms, the price of intermediate goods is high, whereas the cost of outsourcing is low. On the other hand, when they outsource to the Southern firms, the price of intermediate goods is low, whereas the cost of outsourcing is high. Using this model, this paper analyzes not only steady state but also transition path. This paper investigates that, as the economy develops, the wage inequality between the North and the South widens and that the outsourcing location for the Northern final good producers switches from the North to the South.
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