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Globalization, Roundaboutness, and Relative Wages

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Author Info

  • Joseph Francois

    ()
    (Faculty of Economics, Erasmus Universiteit Rotterdam, and CEPR)

  • Kevin Grier

    (University of Oklahoma)

  • Douglas Nelson

    (Tulane University & Leverhulme Centre (Nottingham))

Abstract

We depart from the trade and wages literature and its emphasis on North-South trade, examining North-North by developing the basic linkages between trade-based integration and relative wages in an Ethier-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 Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 04-021/2.

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Date of creation: 23 Feb 2004
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Handle: RePEc:dgr:uvatin:20040021

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Web page: http://www.tinbergen.nl

Related research

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

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References

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  1. Francois, Joseph & Nelson, Doug R, 1998. "A geometry of Specialization," CEPR Discussion Papers 1813, C.E.P.R. Discussion Papers.
  2. Feenstra, R.C. & Hanson, G.H., 1995. "Foreign Investment, Outsourcing and Relative Wages," Papers 95-14, California Davis - Institute of Governmental Affairs.
  3. Mezzetti, C. & Dinopoulos, E., 1989. "Domestic Unionization And Import Competition," Papers 337, California Davis - Institute of Governmental Affairs.
  4. 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.
  5. 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.
  6. Deardorff, A.V., 1998. "Fragmentation Across Cones," Working Papers 427, Research Seminar in International Economics, University of Michigan.
  7. Francois, Joseph & Nelson, Doug R, 2000. "Victims of Progress: Economic Integration, Specialization and Wages for Unskilled Labour," CEPR Discussion Papers 2527, C.E.P.R. Discussion Papers.
  8. Michael Burda & Barbara Dluhosch, 2000. "Fragmentation, Globalization and Labor Markets," CESifo Working Paper Series 352, CESifo Group Munich.
  9. Kunst, Robert M. & Marin, Dalia, 1989. "On Exports and Productivity: A Causal Analysis," Munich Reprints in Economics 3113, University of Munich, Department of Economics.
  10. 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.
  11. 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.
  12. 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.
  13. 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.
  14. Robert C. Feenstra & Gordon H. Hanson, 1995. "Foreign Direct Investment and Relative Wages: Evidence from Mexico's Maquiladoras," NBER Working Papers 5122, National Bureau of Economic Research, Inc.
  15. 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.
  16. Wilhelm Kohler, 2003. "The Distributional Effects of International Fragmentation," German Economic Review, Verein für Socialpolitik, vol. 4(1), pages 89-120, February.
  17. Spence, Michael, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Wiley Blackwell, vol. 43(2), pages 217-35, June.
  18. James R. Markusen & Anthony J. Venables, 1996. "Multinational Production, Skilled Labor and Real Wages," NBER Working Papers 5483, National Bureau of Economic Research, Inc.
  19. 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.
  20. 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.
  21. 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.
  22. 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.
  23. Gene M. Grossman, 1984. "International Competition and the Unionized Sector," Canadian Journal of Economics, Canadian Economics Association, vol. 17(3), pages 541-56, August.
  24. 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.
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Citations

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Cited by:
  1. Joseph Francois & Julia Woerz, 2008. "Producer Services, Manufacturing Linkages, and Trade," Journal of Industry, Competition and Trade, Springer, vol. 8(3), pages 199-229, December.
  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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