Second, outsourcing usually implies the reallocation of low skill activities from high to low income countries. However, these activities are usually high skill in the context of the skill distribution of the low income country. Therefore, outsourcing can make labour demand more skill intensive in both rich and poor countries, leading to increasing income inequality.
Nevertheless, the growth dividend from the greater openness to trade can and should be used in a way that addresses income inequality and poverty. One such way is to promote policies that facilitate the accumulation of human capital, i.e. increase tertiary educational attainment, while another possible option is to consider targeted cash transfers to those in need.