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Globalization, Roundaboutness, and Relative Wages

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  • 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

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

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References

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  1. Kunst, Robert M & Marin, Dalia, 1989. "On Exports and Productivity: A Causal Analysis," The Review of Economics and Statistics, MIT Press, vol. 71(4), pages 699-703, November.
  2. Mezzetti, C. & Dinopoulos, E., 1989. "Domestic Unionization And Import Competition," Papers 337, California Davis - Institute of Governmental Affairs.
  3. Spence, Michael, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Wiley Blackwell, vol. 43(2), pages 217-35, June.
  4. Burda, Michael C. & Dluhosch, Barbara, 2001. "Fragmentation, globalization and labor markets," SFB 373 Discussion Papers 2001,41, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  5. Deardorff, A.V., 1998. "Fragmentation Across Cones," Papers 98-14, Michigan - Center for Research on Economic & Social Theory.
  6. 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.
  7. 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.
  8. 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.
  9. 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.
  10. 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.
  11. Werner Antweiler & Daniel Trefler, 2000. "Increasing Returns and All That: A View From Trade," NBER Working Papers 7941, National Bureau of Economic Research, Inc.
  12. Wilhelm Kohler, 2003. "The Distributional Effects of International Fragmentation," German Economic Review, Verein für Socialpolitik, vol. 4(1), pages 89-120, February.
  13. 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.
  14. Feenstra, R.C. & Hanson, G.H., 1995. "Foreign Investment, Outsourcing and Relative Wages," Department of Economics 95-14, California Davis - Department of Economics.
  15. James R. Markusen & Anthony J. Venables, 1996. "Multinational Production, Skilled Labor and Real Wages," NBER Working Papers 5483, National Bureau of Economic Research, Inc.
  16. Joseph F. Francois & Douglas Nelson, 1998. "A Geometry of Specialization," Tinbergen Institute Discussion Papers 98-006/2, Tinbergen Institute.
  17. 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.
  18. Gene M. Grossman, 1982. "International Competition and the Unionized Sector," NBER Working Papers 0899, National Bureau of Economic Research, Inc.
  19. 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.
  20. 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.
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  22. 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.
  23. 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.
  24. 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.
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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 Francois, 2004. "Assessing the Impact of Trade Policy on Labor Markets and Production," Tinbergen Institute Discussion Papers 04-058/2, Tinbergen Institute.

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