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Skill Dierentiation and Income Disparity in a Decentralized Matching Model of North-South Trade

  • Hesham M. Abdel-Rahman
  • George Norman
  • Ping Wang

This paper develops a North-South trade model in which the South produces food and the North produces both food and a high-tech good. Food production is undertaken by unskilled workers while the high-tech product is made only by horizontally dierentiated skilled workers. Due to the possibility of a peer-group effect, we allow the unskilled workers in the North to be equally or more productive than in the South. Horizontal matching of skilled workers is generally imperfect and the skilled wages are determined by a symmetric Nash bargain. We characterize two dierent types of equilibrium: a closed-economy equilibrium without trade and a free trade equilibrium without labor mobility. We then extend the benchmark framework to consider the presence of transport costs. In all cases with trade, the equilibrium properties of goods pricing, the volume of trade and wage disparities are examined.

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File URL: http://ase.tufts.edu/econ/papers/200115.pdf
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Paper provided by Department of Economics, Tufts University in its series Discussion Papers Series, Department of Economics, Tufts University with number 0115.

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Date of creation: 2001
Date of revision:
Handle: RePEc:tuf:tuftec:0115
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  1. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-42, June.
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  8. Murphy, Kevin M & Topel, Robert H, 1997. "Unemployment and Nonemployment," American Economic Review, American Economic Association, vol. 87(2), pages 295-300, May.
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  11. Helsley, Robert W. & Strange, William C., 1990. "Matching and agglomeration economies in a system of cities," Regional Science and Urban Economics, Elsevier, vol. 20(2), pages 189-212, September.
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  13. Jeffrey D. Sachs & Howard J. Shatz, 1994. "Trade and Jobs in Manufacturing," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(1), pages 1-84.
  14. J. David Richardson, 1995. "Income Inequality and Trade: How to Think, What to Conclude," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 33-55, Summer.
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  17. Eric W. Bond & Kathleen Trask & Ping Wang, 1996. "Factor Accumulation and Trade: Dynamic Comparative Advantage with Endogenous Physical and Human Capital," Vanderbilt University Department of Economics Working Papers 0031, , revised Aug 2000.
  18. Pissarides, C A, 1984. "Efficient Job Rejection," Economic Journal, Royal Economic Society, vol. 94(376a), pages 97-108, Supplemen.
  19. Fischer, Ronald D & Serra, Pablo, 1996. "Income Inequality and Choice of Free Trade in a Model of Intraindustry Trade," The Quarterly Journal of Economics, MIT Press, vol. 111(1), pages 41-64, February.
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