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Competition, Trade and Wages

  • Neary, J Peter

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.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2732.

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Date of creation: Mar 2001
Date of revision:
Handle: RePEc:cpr:ceprdp:2732
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  1. Leahy, Dermot & Neary, J Peter, 2001. "Robust Rules for Industrial Policy in Open Economies," CEPR Discussion Papers 2731, C.E.P.R. Discussion Papers.
  2. Desjonqueres, Thibaut & Machin, Stephen & Van Reenen, John, 1999. " Another Nail in the Coffin? Or Can the Trade Based Explanation of Changing Skill Structures Be Resurrected?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(4), pages 533-54, December.
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  4. Thoenig, M. & Verdier, T., 2000. "Trade Induced Technical Bias and Wage Inequalities: a Theory of Defensive Innovation," DELTA Working Papers 2000-02, DELTA (Ecole normale supérieure).
  5. Francois, Joseph F & Nelson, Douglas, 1998. "Trade, Technology, and Wages: General Equilibrium Mechanics," Economic Journal, Royal Economic Society, vol. 108(450), pages 1483-99, September.
  6. Edward E. Leamer, 1996. "What's the Use of Factor Contents?," NBER Working Papers 5448, National Bureau of Economic Research, Inc.
  7. Wood, Adrian, 1995. "North-South Trade, Employment and Inequality: Changing Fortunes in a Skill-Driven World," OUP Catalogue, Oxford University Press, number 9780198290155, July.
  8. Fudenberg, Drew & Tirole, Jean, 1984. "The Fat-Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look," American Economic Review, American Economic Association, vol. 74(2), pages 361-66, May.
  9. JASKOLD GABSZEWICZ, Jean & VIAL, Jean-Philippe, . "Oligopoly "Ã la Cournot" in a general equilibrium analysis," CORE Discussion Papers RP 106, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  12. Johnson, George & Stafford, Frank, 1999. "The labor market implications of international trade," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 34, pages 2215-2288 Elsevier.
  13. Krishna, Kala, 1989. "Trade restrictions as facilitating practices," Journal of International Economics, Elsevier, vol. 26(3-4), pages 251-270, May.
  14. D Leahy & J.P. Neary, 1998. "Strategic Trade and Industrial PolicyTowards Dynamic Oligopolies," CEP Discussion Papers dp0409, Centre for Economic Performance, LSE.
  15. Hilde Vandenbussche & Jozef Konings, 1998. "Globalization and the effects of national versus international competition on the labour market. Theory and evidence from Belgian firm level data," Center for Economic Studies - Discussion papers ces9821, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
  16. Paul Krugman, 1995. "Technology, Trade, and Factor Prices," NBER Working Papers 5355, National Bureau of Economic Research, Inc.
  17. Egbert DIERKER & Birgit GRODAL, 1996. "The Price Normalization Problem in Imperfect Competition and the Objective of the Firm," Vienna Economics Papers vie9616, University of Vienna, Department of Economics.
  18. Haskel, Jonathan, 2000. "The Trade and Labour Approaches to Wage Inequality," CEPR Discussion Papers 2476, C.E.P.R. Discussion Papers.
  19. Donald R. Davis, 1996. "Technology, Unemployment, and Relative Wages in a Global Economy," NBER Working Papers 5636, National Bureau of Economic Research, Inc.
  20. Hine, Robert C & Wright, Peter W, 1998. "Trade with Low Wage Economies, Employment and Productivity in UK Manufacturing," Economic Journal, Royal Economic Society, vol. 108(450), pages 1500-1510, September.
  21. Flam, Harry & Helpman, Elhanan, 1987. "Industrial policy under monopolistic competition," Journal of International Economics, Elsevier, vol. 22(1-2), pages 79-102, February.
  22. Nickell, Stephen & Bell, Brian, 1995. "The Collapse in Demand for the Unskilled and Unemployment across the OECD," Oxford Review of Economic Policy, Oxford University Press, vol. 11(1), pages 40-62, Spring.
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  24. Richard Harris, 1985. "Why Voluntary Export Restraints Are 'Voluntary.'," Canadian Journal of Economics, Canadian Economics Association, vol. 18(4), pages 799-809, November.
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  26. repec:oup:qjecon:v:98:y:1983:i:1:p:63-83 is not listed on IDEAS
  27. Ronald W. Jones, 1965. "The Structure of Simple General Equilibrium Models," Journal of Political Economy, University of Chicago Press, vol. 73, pages 557.
  28. d'Aspremont, Claude & Dos Santos Ferreira, Rodolphe & Gerard-Varet, Louis-Andre, 1996. "On the Dixit-Stiglitz Model of Monopolistic Competition," American Economic Review, American Economic Association, vol. 86(3), pages 623-29, June.
  29. Ronald W. Jones, 1997. "Trade, Technology and Income Distribution," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 32(2), pages 129-140, July.
  30. Davis, Donald R, 1998. "Does European Unemployment Prop Up American Wages? National Labor Markets and Global Trade," American Economic Review, American Economic Association, vol. 88(3), pages 478-94, June.
  31. repec:oup:restud:v:50:y:1983:i:4:p:707-22 is not listed on IDEAS
  32. Slaughter, Matthew J, 1998. "International Trade and Labour-Market Outcomes: Results, Questions, and Policy Options," Economic Journal, Royal Economic Society, vol. 108(450), pages 1452-62, September.
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