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Product Market Integration, Wages and Inequality


  • Andersen, Torben M
  • Sorensen, Allan


International integration strengthening intra-industrial trade may have important implications for employment, wages and inequality. The reason is that product market integration enhances export possibilities through easier access to foreign markets, but also import threats arising from foreign firms entering the domestic market. We explore the implications of these mechanisms in a general equilibrium version of a Ricardian trade model allowing for heterogeneity and imperfect competition in both product and labour markets. International integration is interpreted as a reduction in trade frictions. We find that wage dispersion in general tend to be U-shaped, at first falling and then increasing in product market integration. This finding has important implications not only for the ‘globalization’ debate, but also for empirical analysis.

Suggested Citation

  • Andersen, Torben M & Sorensen, Allan, 2005. "Product Market Integration, Wages and Inequality," CEPR Discussion Papers 4963, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:4963

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    References listed on IDEAS

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    Cited by:

    1. Biffl, Gudrun, 2006. "Towards a common migration policy : potential impact on the EU economy," Zeitschrift für ArbeitsmarktForschung - Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 39(1), pages 7-23.
    2. repec:iab:iabzaf:v:39:i:1:p:7-23 is not listed on IDEAS

    More about this item


    comparative advantages; inequality; rent sharing; trade frictions;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J39 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Other
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

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