Abstract
In this paper I present a North-South endogenous growth model in which the impact of globalization on international outsourcing and growth can be analyzed. In the model, the skilled-labor abundant North is the only innovator in the world. Globalization (a reduction in trade costs) leads to a relocation of production to the South in a differentiated-product sector, and a rise in outsourcing by Northern firms. In addition, more resources are shifted to R&D in the North, and the growth rate in the world increases. The model has several empirically consistent implications, such as rising relative wages of skilled to unskilled labor under globalization in both the North and South. I also discuss the welfare impact of globalization in this model.
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