IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

To Integrate with a High- Or Low-Wage Country: That is the Question

  • Choi, E. Kwan

This paper considers the question of whether a country with the intermediate capital–laborratio is better off forming a free trade area with the higher or lower wage country. Typicalanalyses of gains from trade ignore the effects of free trade on factor prices. When Europe formsa free trade area with a high-wage economy, the equalized wage rises and rent declines, whilethe price of the importable declines. Workers unambiguously benefit, but integration has anambiguous effect on capitalists. However, consumers as a whole benefit from the integrationand workers can more than offset the losses of the capitalists. On the other hand, Europe'sintegration with a low-wage economy raises rent but lowers the wage and the price of thelabor-intensive good. Accordingly, capitalists unambiguously benefit, but integration has anambiguous effect on workers. Again, welfare of all consumers rises and the capitalists can morethan offset the losses of workers.

To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.

Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 34998.

in new window

Date of creation: 01 Sep 2011
Date of revision:
Publication status: Published in International Review of Economics and Finance, Fourth Quarter 2011, vol. 20 no. 4, pp. 792-799
Handle: RePEc:isu:genres:34998
Contact details of provider: Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
Web page:

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Leonardo Gasparini & Pablo Acosta, 2004. "Capital Accumulation, Trade Liberalization and Rising Wage Inequality: The Case of Argentina," CEDLAS, Working Papers 0005, CEDLAS, Universidad Nacional de La Plata.
  2. Bagwell,K. & Staiger,R.W., 1998. "An economic theory of GATT," Working papers 15, Wisconsin Madison - Social Systems.
  3. Woodland, Alan D, 1980. "Direct and Indirect Trade Utility Functions," Review of Economic Studies, Wiley Blackwell, vol. 47(5), pages 907-26, October.
  4. Adrian Wood, 1995. "How Trade Hurt Unskilled Workers," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 57-80, Summer.
  5. Levy, Philip I, 1997. "A Political-Economic Analysis of Free-Trade Agreements," American Economic Review, American Economic Association, vol. 87(4), pages 506-19, September.
  6. Verhoogen, Eric, 2007. "Trade, Quality Upgrading and Wage Inequality in the Mexican Manufacturing Sector," IZA Discussion Papers 2913, Institute for the Study of Labor (IZA).
  7. Neary, J Peter, 1985. "Two-by-Two International Trade Theory with Many Goods and Factors," Econometrica, Econometric Society, vol. 53(5), pages 1233-47, September.
  8. Reza Oladi & Hamid Beladi, 2008. "Is Regionalism Viable? A Case for Global Free Trade," Review of International Economics, Wiley Blackwell, vol. 16(2), pages 293-300, 05.
  9. Tahir Abdi, 2007. "Trade liberalization, technology, relative factor supplies and the relative wage: evidence from the South," Applied Economics, Taylor & Francis Journals, vol. 39(19), pages 2451-2463.
  10. Leamer, Edward E, 1996. "Wage Inequality from International Competition and Technological Change: Theory and Country Experience," American Economic Review, American Economic Association, vol. 86(2), pages 309-14, May.
  11. Bond, Eric W. & Riezman, Raymond G. & Syropoulos, Constantinos, 2004. "A strategic and welfare theoretic analysis of free trade areas," Journal of International Economics, Elsevier, vol. 64(1), pages 1-27, October.
  12. Ethier, Wilfred J., 1984. "Higher dimensional issues in trade theory," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 3, pages 131-184 Elsevier.
  13. Choi, E. Kwan, 2003. "Implications of Many Industries in the Heckscher-Ohlin Model," Staff General Research Papers 11379, Iowa State University, Department of Economics.
  14. Wood Júnior, Thomaz, 1995. "Workers," RAE - Revista de Administração de Empresas, FGV-EAESP Escola de Administração de Empresas de São Paulo (Brazil), vol. 35(2), January.
  15. Prachi Mishra & Utsav Kumar, 2005. "Trade Liberalization and Wage Inequality: Evidence From India," IMF Working Papers 05/20, International Monetary Fund.
  16. Matthew J. Slaughter, 1997. "Per Capita Income Convergence and the Role of International Trade," NBER Working Papers 5897, National Bureau of Economic Research, Inc.
  17. Choi, E. Kwan, 2008. "Factor growth and equalized factor prices," International Review of Economics & Finance, Elsevier, vol. 17(4), pages 517-528, October.
  18. Slaughter, Matthew J, 1997. "Per Capita Income Convergence and the Role of International Trade," American Economic Review, American Economic Association, vol. 87(2), pages 194-99, May.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:isu:genres:34998. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Curtis Balmer)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.