Global Sourcing: East-West Divide or Synthesis?

Abstract

This chapter shows that ICTs make possible a more inclusive global trade, since now labour intensive components of production can be unbundled and sent where it is cheaper. The new mobility of virtual labour, together with the rise in capital mobility, will lead to a wider diffusion of benefits. ICTs reduce frictions and search costs in labour markets, and allow access to new hitherto excluded segments, whether firms or workers in developing countries or women. The smaller scale of efficient production induces more entry of new firms, thus raising wages and employment more than profits, and benefiting workers. Higher levels of employment and learning-by-doing can, in turn, induce more labour using technological progress and further raise both productivity and wages. Policy that targets education and training of workers and reduces barriers to the entry of new firms can minimize underinvestment and short-run job loss for developed country workers.