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Low-wage competition: pains from trade for medium-wage countries

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  • Lutz G. Arnold
  • Michael Heyna

Abstract

The entry of a low-wage country into a world economy with preexisting wage differentials puts the gains from trade in a former low-wage and then medium-wage country under pressure. If negotiations over the formation of a free trade area cover international transfers, there is a strong presumption that they bring about global free trade and compensation of the medium-wage country if necessary. In the absence of international transfers, by contrast, the medium-wage country is not compensated when global free trade causes a reduction in its gains from trade, and it may even happen that it is not part of the equilibrium free trade area.

Suggested Citation

  • Lutz G. Arnold & Michael Heyna, 2022. "Low-wage competition: pains from trade for medium-wage countries," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 31(5), pages 742-758, July.
    • Handle: RePEc:taf:jitecd:v:31:y:2022:i:5:p:742-758
    DOI: 10.1080/09638199.2021.2016897
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