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Globalization, Roundaboutness and Relative Wages

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  • Francois, Joseph
  • Grier, Kevin Blaine
  • Nelson, Douglas

Abstract

We depart from the trade and wages literature and its emphasis on North-South trade, examining North-North trade and linkages between trade-based integration and relative wages in an Etiher-type division of labor model. Using this model we identify a formal relationship between international trade, productivity, and wages. We then examine the trivariate relationship between trade, growth in total factor productivity (TFP), and the skill premium in a vector autoregression framework. We find evidence of a long-run relationship between growth in intermediate goods and changes in TFP. Controlling for this relationship we also find a positive relationship between trade and the skill-premium.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4406.

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Date of creation: Jun 2004
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Handle: RePEc:cpr:ceprdp:4406

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Keywords: division of labour; globalization; intra-industry trade; monopolistic competition; trade and wages;

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References

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  1. Gene M. Grossman, 1982. "International Competition and the Unionized Sector," NBER Working Papers 0899, National Bureau of Economic Research, Inc.
  2. Trefler, Daniel, 1995. "The Case of the Missing Trade and Other Mysteries," American Economic Review, American Economic Association, vol. 85(5), pages 1029-46, December.
  3. Francois, Joseph & Nelson, Doug R, 1998. "A geometry of Specialization," CEPR Discussion Papers 1813, C.E.P.R. Discussion Papers.
  4. Robert C. Feenstra & Gordon H. Hanson, 1995. "Foreign Investment, Outsourcing and Relative Wages," NBER Working Papers 5121, National Bureau of Economic Research, Inc.
  5. Atesoglu, H Sonmez & Vilasuso, Jon, 1999. "A Band Spectral Analysis of Exports and Economic Growth in the United States," Review of International Economics, Wiley Blackwell, vol. 7(1), pages 140-52, February.
  6. Robert E. Baldwin & Glen G. Cain, 2000. "Shifts In Relative U.S. Wages: The Role Of Trade, Technology, And Factor Endowments," The Review of Economics and Statistics, MIT Press, vol. 82(4), pages 580-595, November.
  7. Deardorff, A.V., 1998. "Fragmentation Across Cones," Papers 98-14, Michigan - Center for Research on Economic & Social Theory.
  8. Joseph Francois & Douglas R. Nelson, 2000. "Victims of Progress: Economic Integration, Specialization, and Wages for Unskilled Labor," Tinbergen Institute Discussion Papers 00-065/2, Tinbergen Institute.
  9. Spence, Michael, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Wiley Blackwell, vol. 43(2), pages 217-35, June.
  10. Gaston, Noel & Trefler, Daniel, 1995. "Union wage sensitivity to trade and protection: Theory and evidence," Journal of International Economics, Elsevier, vol. 39(1-2), pages 1-25, August.
  11. Feenstra, Robert C. & Hanson, Gordon H., 1997. "Foreign direct investment and relative wages: Evidence from Mexico's maquiladoras," Journal of International Economics, Elsevier, vol. 42(3-4), pages 371-393, May.
  12. Mezzetti, Claudio & Dinopoulos, Elias, 1991. "Domestic unionization and import competition," Journal of International Economics, Elsevier, vol. 31(1-2), pages 79-100, August.
  13. Markusen, James R & Venables, Anthony J, 1997. "The Role of Multinational Firms in the Wage-Gap Debate," Review of International Economics, Wiley Blackwell, vol. 5(4), pages 435-51, November.
  14. Colin Lawrence & Robert Z. Lawrence, 1985. "Manufacturing Wage Dispersion: An End Game Interpretation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(1), pages 47-116.
  15. Brander, James A. & Spencer, Barbara J., 1988. "Unionized oligopoly and international trade policy," Journal of International Economics, Elsevier, vol. 24(3-4), pages 217-234, May.
  16. Francois, Joseph F, 1994. "Global Production and Trade: Factor Migration and Commercial Policy with International Scale Economies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(3), pages 565-81, August.
  17. Romer, Paul M, 1987. "Growth Based on Increasing Returns Due to Specialization," American Economic Review, American Economic Association, vol. 77(2), pages 56-62, May.
  18. Werner Antweiler & Daniel Trefler, 2002. "Increasing Returns and All That: A View from Trade," American Economic Review, American Economic Association, vol. 92(1), pages 93-119, March.
  19. Michael Burda & Barbara Dluhosch, 2000. "Fragmentation, Globalization and Labor Markets," CESifo Working Paper Series 352, CESifo Group Munich.
  20. Wilhelm Kohler, 2003. "The Distributional Effects of International Fragmentation," German Economic Review, Verein für Socialpolitik, vol. 4(1), pages 89-120, February.
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  22. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
  23. Lovely, Mary E & Nelson, Douglas R, 2000. "Marginal Intraindustry Trade and Labor Adjustment," Review of International Economics, Wiley Blackwell, vol. 8(3), pages 436-47, August.
  24. James R. Markusen & Anthony J. Venables, 1996. "Multinational Production, Skilled Labor and Real Wages," NBER Working Papers 5483, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Joseph Francois & Julia Woerz, 2007. "Producer Services, Manufacturing Linkages, and Trade," FIW Working Paper series 002, FIW.
  2. Joseph F. Francois, 2004. "Assessing the Impact of Trade Policy on Labour Markets and Production," Economie Internationale, CEPII research center, issue 99, pages 27-47.

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