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Globalization, product differentiation, and wage inequality

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  • Paulo Bastos
  • Odd Rune Straume

Abstract

This paper develops a two-country, general equilibrium model of oligopoly in which the degree of horizontal product differentiation is endogenously determined by firms' strategic investments in product innovation. Consumers seek variety and product innovation is more skill intensive than production. Stronger import competition increases innovation incentives, and thereby the relative demand for skill. An intra-industry trade expansion following trade liberalization can therefore increase wage inequality between skilled and unskilled workers. As long as some industries remain shielded from international competition, the welfare implications of globalization are found to be generally ambiguous.

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Bibliographic Info

Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 45 (2012)
Issue (Month): 3 (August)
Pages: 857-878

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Handle: RePEc:cje:issued:v:45:y:2012:i:3:p:857-878

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References

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Citations

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Cited by:
  1. Dutta, Meghna & Kar, Saibal & Marjit, Sugata, 2013. "Product variety, finite changes and wage inequality," Economic Modelling, Elsevier, vol. 35(C), pages 610-613.
  2. Udo Kreickemeier & Frode Meland, 2011. "International Trade, Union Wage Premia, and Welfare in General Equilibrium," CESifo Working Paper Series 3407, CESifo Group Munich.
  3. Rudy Colacicco, 2013. "Strategic Trade Policy in General Oligopolistic Equilibrium," FIW Working Paper series 126, FIW.
  4. Colacicco, Rudy, 2012. "The "Average" Within-Sector Firm Heterogeneity in General Oligopolistic Equilibrium," MPRA Paper 40212, University Library of Munich, Germany.
  5. Atif, Syed Muhammad, 2012. "Critical Review of 'A Simple Model of Firm Heterogeneity, International Trade and Wages'," MPRA Paper 42334, University Library of Munich, Germany.

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