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Foreign Competition and Wage Inequality

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  • J.Peter Neary

Abstract

The author argues that increased foreign competition can affect technical choice and skill differentials even when actual imports do not rise significantly. A model is presented of general oligopolistic equilibrium (GOLE) in which a reduction in import barriers (whether technological or policy–imposed) encourages more strategic investment by incumbent firms. The predictions accord with many of the stylized facts: higher skill premia; higher ratios of skilled to unskilled workers employed in all sectors and throughout the economy; little change in import volumes or prices; and rapid technological progress with rather little change in total factor productivity.

Suggested Citation

  • J.Peter Neary, 2002. "Foreign Competition and Wage Inequality," Review of International Economics, Wiley Blackwell, vol. 10(4), pages 680-693, November.
    • Handle: RePEc:bla:reviec:v:10:y:2002:i:4:p:680-693
    DOI: 10.1111/1467-9396.00358
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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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