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Globalisation and Wage Differentials: A Spatial Analysis

In this paper, we assess the Fujita, Krugman and Venables (FKV) nonlinear model of wage differentials. Using a spatial econometric model incorporating a spatial autoregressive error process, we estimate a quadratic form using cross-sectional data for 98 countries from 1970 to 2000. The evidence suggests no necessary tendency for all countries to converge towards the stable upper root. Polarization is possible. This polarization may be permanent - generating persistent international wage differentials. Our findings suggest that moderating the transmission of shocks across countries should be a key element of international macroeconomic policy co-ordination.

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File URL: http://www.econ.cam.ac.uk/research/repec/cam/pdf/cwpe0845.pdf
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Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0845.

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Date of creation: Sep 2008
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Handle: RePEc:cam:camdae:0845
Contact details of provider: Web page: http://www.econ.cam.ac.uk/index.htm

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  4. Kelejian, Harry H & Prucha, Ingmar R, 1999. "A Generalized Moments Estimator for the Autoregressive Parameter in a Spatial Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(2), pages 509-33, May.
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  17. Bernard, Andrew B & Jones, Charles I, 1996. "Technology and Convergence," Economic Journal, Royal Economic Society, vol. 106(437), pages 1037-44, July.
  18. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  19. Michael D. Bordo & Alan M. Taylor & Jeffrey G. Williamson, 2003. "Globalization in Historical Perspective," NBER Books, National Bureau of Economic Research, Inc, number bord03-1, June.
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