To integrate with a high- or low-wage country: That is the question
AbstractThis paper considers the question of whether a country with the intermediate capital-labor ratio is better off forming a free trade area with the higher or lower wage country. Typical analyses of gains from trade ignore the effects of free trade on factor prices. When Europe forms a free trade area with a high-wage economy, the equalized wage rises and rent declines, while the price of the importable declines. Workers unambiguously benefit, but integration has an ambiguous effect on capitalists. However, consumers as a whole benefit from the integration and workers can more than offset the losses of the capitalists. On the other hand, Europe's integration with a low-wage economy raises rent but lowers the wage and the price of the labor-intensive good. Accordingly, capitalists unambiguously benefit, but integration has an ambiguous effect on workers. Again, welfare of all consumers rises and the capitalists can more than offset the losses of workers.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal International Review of Economics & Finance.
Volume (Year): 20 (2011)
Issue (Month): 4 (October)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/620165
Integrate High-wage Income distribution;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Eric A. Verhoogen, 2008.
"Trade, Quality Upgrading, and Wage Inequality in the Mexican Manufacturing Sector,"
The Quarterly Journal of Economics,
MIT Press, vol. 123(2), pages 489-530, 05.
- Verhoogen, Eric, 2007. "Trade, Quality Upgrading and Wage Inequality in the Mexican Manufacturing Sector," IZA Discussion Papers 2913, Institute for the Study of Labor (IZA).
- Eric Verhoogen, 2007. "Trade, quality upgrading and wage inequality in the Mexican manufacturing sector," Discussion Papers 0607-08, Columbia University, Department of Economics.
- Verhoogen, Eric A., 2007. "Trade, Quality Upgrading and Wage Inequality in the Mexican Manufacturing Sector," CEPR Discussion Papers 6385, C.E.P.R. Discussion Papers.
- Robert W. Staiger & Kyle Bagwell, 1999.
"An Economic Theory of GATT,"
American Economic Review,
American Economic Association, vol. 89(1), pages 215-248, March.
- Utsav Kumar & Prachi Mishra, 2008.
"Trade Liberalization and Wage Inequality: Evidence from India,"
Review of Development Economics,
Wiley Blackwell, vol. 12(2), pages 291-311, 05.
- Prachi Mishra & Utsav Kumar, 2005. "Trade Liberalization and Wage Inequality: Evidence from India," IMF Working Papers 05/20, International Monetary Fund.
- Matthew J. Slaughter, 1997. "Per Capita Income Convergence and the Role of International Trade," NBER Working Papers 5897, National Bureau of Economic Research, Inc.
- Ethier, Wilfred J., 1984. "Higher dimensional issues in trade theory," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 3, pages 131-184 Elsevier.
- Leamer, Edward E, 1996. "Wage Inequality from International Competition and Technological Change: Theory and Country Experience," American Economic Review, American Economic Association, vol. 86(2), pages 309-14, May.
- Adrian Wood, 1995. "How Trade Hurt Unskilled Workers," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 57-80, Summer.
- Tahir Abdi, 2007. "Trade liberalization, technology, relative factor supplies and the relative wage: evidence from the South," Applied Economics, Taylor & Francis Journals, vol. 39(19), pages 2451-2463.
- Woodland, Alan D, 1980. "Direct and Indirect Trade Utility Functions," Review of Economic Studies, Wiley Blackwell, vol. 47(5), pages 907-26, October.
- Levy, Philip I, 1997. "A Political-Economic Analysis of Free-Trade Agreements," American Economic Review, American Economic Association, vol. 87(4), pages 506-19, September.
- Bond, Eric W. & Riezman, Raymond G. & Syropoulos, Constantinos, 2004. "A strategic and welfare theoretic analysis of free trade areas," Journal of International Economics, Elsevier, vol. 64(1), pages 1-27, October.
- Neary, J Peter, 1985. "Two-by-Two International Trade Theory with Many Goods and Factors," Econometrica, Econometric Society, vol. 53(5), pages 1233-47, September.
- Pablo Acosta & Leonardo Gasparini, 2007.
"Capital Accumulation, Trade Liberalization, and Rising Wage Inequality: The Case of Argentina,"
Economic Development and Cultural Change,
University of Chicago Press, vol. 55, pages 793-812.
- Leonardo Gasparini & Pablo Acosta, 2004. "Capital Accumulation, Trade Liberalization and Rising Wage Inequality: The Case of Argentina," CEDLAS, Working Papers 0005, CEDLAS, Universidad Nacional de La Plata.
- Choi, E. Kwan, 2008. "Factor growth and equalized factor prices," International Review of Economics & Finance, Elsevier, vol. 17(4), pages 517-528, October.
- Slaughter, Matthew J, 1997. "Per Capita Income Convergence and the Role of International Trade," American Economic Review, American Economic Association, vol. 87(2), pages 194-99, May.
- Reza Oladi & Hamid Beladi, 2008. "Is Regionalism Viable? A Case for Global Free Trade," Review of International Economics, Wiley Blackwell, vol. 16(2), pages 293-300, 05.
- Chao, Chi-Chur & Laffargue, Jean-Pierre & Sgro, Pasquale M., 2012. "Environmental control, wage inequality and national welfare in a tourism economy," International Review of Economics & Finance, Elsevier, vol. 22(1), pages 201-207.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If references are entirely missing, you can add them using this form.