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Critical Review of 'A Simple Model of Firm Heterogeneity, International Trade and Wages'

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  • Atif, Syed Muhammad

Abstract

This report critically analyses the paper "A Simple Model of Firm Heterogeneity, International Trade and Wages' authored by, Stephen Ross Yeaple. Yeaple (2005) introduces a static model in which ex-ante homogeneous firms are differentiated based on heterogeneity in technology adoption and skill selection. The process of decision making is based on comparative study of revenues and costs associated with acquisition of technology and labor. By segmenting technology into high- and low-tech, and labor into high- and low-skilled, Yeaple suggests that high-tech firms hire skilled labor at greater wages and yield the access to international market, while on the other hand, the low-tech firms hire moderate skilled labor, pay lower wages and supply to the domestic market only. Furthermore, he shows that under an open economy, a reduction in costs of international trade leads to an increase in share of high-tech (exporting) firms and induces some low-tech firms to switch to the high-tech industry.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 42334.

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Date of creation: 26 Oct 2012
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Handle: RePEc:pra:mprapa:42334

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Keywords: Firm Heterogeneity; International Trade;

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  1. Maria Guadalupe, 2005. "Product market competition returns to skill and wage inequality," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 19895, London School of Economics and Political Science, LSE Library.
  2. Caliendo, Lorenzo & Rossi-Hansberg, Esteban, 2011. "The Impact of Trade on Organization and Productivity," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8535, C.E.P.R. Discussion Papers.
  3. Roberto Alvarez & Ricardo López, 2005. "Exporting and performance: evidence from Chilean plants," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 38(4), pages 1384-1400, November.
  4. Paulo Bastos & Odd Rune Straume, 2010. "Globalization, Product Differentiation and Wage Inequality," Research Department Publications, Inter-American Development Bank, Research Department 4679, Inter-American Development Bank, Research Department.
  5. Michael P. Keane, 1991. "Individual heterogeneity and interindustry wage differentials," Discussion Paper / Institute for Empirical Macroeconomics, Federal Reserve Bank of Minneapolis 54, Federal Reserve Bank of Minneapolis.
  6. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, American Economic Association, vol. 74(3), pages 433-44, June.
  7. Akerlof, George A & Yellen, Janet L, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 105(2), pages 255-83, May.
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