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Competition, trade and wages

  • J. Peter Neary

I briefly review 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 School of Economics, University College Dublin in its series Working Papers with number 200020.

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Date of creation: Jun 2001
Date of revision:
Handle: RePEc:ucn:wpaper:200020
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  1. Wood, Adrian, 1995. "North-South Trade, Employment and Inequality: Changing Fortunes in a Skill-Driven World," OUP Catalogue, Oxford University Press, number 9780198290155, July.
  2. Leahy, Dermot & Neary, J Peter, 1998. "Strategic Trade and Industrial Policy Towards Dynamic Oligopolies," CEPR Discussion Papers 1968, C.E.P.R. Discussion Papers.
  3. Thoenig, Mathias & Verdier, Thierry, 2000. "Trade Induced Technical Bias And Wage Inequalities: A Theory Of Defensive Innovations," CEPR Discussion Papers 2401, C.E.P.R. Discussion Papers.
  4. 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.
  5. Krishna, Kala, 1989. "Trade restrictions as facilitating practices," Journal of International Economics, Elsevier, vol. 26(3-4), pages 251-270, May.
  6. d'ASPREMONT, C. & DOS SANTOS FERREIRA, R. & GÉRARD-VARET, L.-A., . "On the Dixit-Stiglitz model of monopolistic competition," CORE Discussion Papers RP 1211, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Haskel, Jonathan, 2000. "The Trade and Labour Approaches to Wage Inequality," CEPR Discussion Papers 2476, C.E.P.R. Discussion Papers.
  8. Paul Krugman, 1995. "Growing World Trade: Causes and Consequences," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 327-377.
  9. Barbara J. Spencer & James A. Brander, 1982. "International R&D Rivalry and Industrial Strategy," Working Papers 518, Queen's University, Department of Economics.
  10. Egbert Dierker & Birgit Grodal, 1996. "The Price Normalization Problem in Imperfect Competition and the Objective of the Firm," Discussion Papers 96-05, University of Copenhagen. Department of Economics.
  11. Dermot Leahy & J. Peter Neary, 2001. "Robust rules for industrial policy in open economics," Working Papers 200021, School of Economics, University College Dublin.
  12. Ronald W. Jones, 1965. "The Structure of Simple General Equilibrium Models," Journal of Political Economy, University of Chicago Press, vol. 73, pages 557.
  13. 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.
  14. Paul Krugman, 1995. "Technology, Trade, and Factor Prices," NBER Working Papers 5355, National Bureau of Economic Research, Inc.
  15. Flam, Harry & Helpman, Elhanan, 1987. "Industrial policy under monopolistic competition," Journal of International Economics, Elsevier, vol. 22(1-2), pages 79-102, February.
  16. Hylke Vandenbussche & Jozef Konings, 1998. "Globalisation and the Effects of National Versus International Competition on the Labour Market: Theory and Evidence from Belgian Firm Level Data," The World Economy, Wiley Blackwell, vol. 21(8), pages 1151-1177, November.
  17. 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.
  18. Feenstra, Robert C & Hanson, Gordon H, 1996. "Globalization, Outsourcing, and Wage Inequality," American Economic Review, American Economic Association, vol. 86(2), pages 240-45, May.
  19. repec:tpr:qjecon:v:98:y:1983:i:1:p:63-83 is not listed on IDEAS
  20. Donald R. Davis, 1996. "Technology, Unemployment, and Relative Wages in a Global Economy," NBER Working Papers 5636, National Bureau of Economic Research, Inc.
  21. 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.
  22. 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.
  23. 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.
  24. repec:tpr:qjecon:v:110:y:1995:i:4:p:1075-1110 is not listed on IDEAS
  25. 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.
  26. Richard Harris, 1985. "Why Voluntary Export Restraints Are 'Voluntary.'," Canadian Journal of Economics, Canadian Economics Association, vol. 18(4), pages 799-809, November.
  27. Edward E. Leamer, 1996. "What's the Use of Factor Contents?," NBER Working Papers 5448, National Bureau of Economic Research, Inc.
  28. 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.
  29. Jaskold Gabszewicz, Jean & Vial, Jean-Philippe, 1972. "Oligopoly "A la cournot" in a general equilibrium analysis," Journal of Economic Theory, Elsevier, vol. 4(3), pages 381-400, June.
  30. 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.
  31. R. Melvin, James & Warne, Robert D., 1973. "Monopoly and the theory of international trade," Journal of International Economics, Elsevier, vol. 3(2), pages 117-134, May.
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