This paper develops a simple two-country model in which each economy consists of two sectors: a competitive non-tradable sector and an oligopolistic tradable sector. We investigate two related issues that arise in response to trade liberalization. First, we examine the linkage between trade liberalization and the nature of merger incentives in the oligopolistic tradable sector. We find that trade liberalization changes the industry structure leading to cross border mergers. Next, we explore the impact of this change on the labour market of the competitive non-tradable sector. It is found that the employment and wage impacts of the fall in the price of tradable goods depend on the price elasticity of demand for tradable goods and non-tradable goods, and the share of the tradable intermediate goods in the total cost of production of non-tradables. As a result, the positive employment impact is certain only if the demand for tradable goods is inelastic, while labour and tradable intermediate goods are complements.
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