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Competition, Trade and Wages

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  • Neary, J Peter

Abstract

I review briefly the empirical evidence in the trade and wages debate, which overwhelmingly rejects the Heckscher-Ohlin explanation for recent increases in OECD skill premia. I then argue that the same evidence is also difficult to reconcile in general equilibrium with the view that exogenous skill-biased technological progress is the sole culprit. Finally, I present a model of oligopolistic competition, which is more consistent with the evidence. Removing quantitative import constraints (a metaphor for increased foreign competition) encourages both home and foreign firms to invest more aggressively, raising their demand for skilled labour even at unchanged relative wages.

Suggested Citation

  • Neary, J Peter, 2001. "Competition, Trade and Wages," CEPR Discussion Papers 2732, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:2732
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    Cited by:

    1. Ugo Fratesi, 2008. "Regional policy from a supra-regional perspective," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 42(3), pages 681-703, September.
    2. Lionel Fontagné & Daniel Mirza, 2001. "International Trade and Rent Sharing in Developed and Developing countries," Working Papers 2001-09, CEPII research center.
    3. J. Peter Neary, 2000. "Monopolistic competition and international trade theory," Working Papers 200025, School of Economics, University College Dublin.
    4. Ethier, Wilfred J., 2005. "Globalization, globalisation: Trade, technology, and wages," International Review of Economics & Finance, Elsevier, vol. 14(3), pages 237-258.
    5. A. B. Atkinson, 2003. "Income Inequality in OECD Countries: Data and Explanations," CESifo Economic Studies, CESifo, vol. 49(4), pages 479-513.
    6. Satya P. Das, 2003. "Trade and Relative Wage in a Global Economy," Review of International Economics, Wiley Blackwell, vol. 11(2), pages 397-411, May.
    7. Weiss, Pia & Wälde, Klaus, 2001. "Globalisation is good for you: Distributional effects of mergers caused by globalisation," Dresden Discussion Paper Series in Economics 07/01, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.
    8. Ekholm, Karolina & Midelfart, Karen Helene, 2005. "Relative wages and trade-induced changes in technology," European Economic Review, Elsevier, vol. 49(6), pages 1637-1663, August.
    9. Denny, Kevin & Harmon, Colm & Lydon, Raemonn, 2002. "Cross Country Evidence on the Returns to Education: Patterns and Explanations," CEPR Discussion Papers 3199, C.E.P.R. Discussion Papers.
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    11. Donald Robbins, 2003. "The impact of trade liberalization upon inequality in developing countries - A review of theory and evidence-," Documentos de Economía 003601, Universidad Javeriana - Bogotá.
    12. Bernard Hoekman & Alan L. Winters, 2005. "Trade and Employment: Stylized Facts and Research Findings," Working Papers 7, United Nations, Department of Economics and Social Affairs.

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    More about this item

    Keywords

    OECD Wage Inequality; Oligopolistic Competition; Skill Premia; Skill-Biased Technological Progress; Trade And Wages;
    All these keywords.

    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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