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Foreign competition and wage inequality

  • J. Peter Neary

I argue that increased foreign competition can affect technical choice and skill differentials even when actual imports do not rise significantly. I present a model of General Oligopolistic Equilibrium ("GOLE") in which a reduction in import barriers (whethe technological or policy-imposed) encourages more strategic investment by incumbent firms. The predictions accord with many of the stylised facts: higher skill premia; higher ratios of skilled to unskilled workers employed in all sectors and throughout the economy; little change in import volumes or prices; and rapid technological progress with rather little change in total factor productivity. (Presidential address to the International Economics and Finance Society, presented at the AEA/ASSA meetings, New Orleans, January 2001.)

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File URL: http://hdl.handle.net/10197/1270
File Function: First version, 2001
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Paper provided by School of Economics, University College Dublin in its series Working Papers with number 200102.

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Date of creation: Nov 2001
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Handle: RePEc:ucn:wpaper:200102
Contact details of provider: Postal: UCD, Belfield, Dublin 4
Phone: +353-1-7067777
Fax: +353-1-283 0068
Web page: http://www.ucd.ie/economics

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  1. Neary, J Peter & Leahy, Dermot, 2000. "Strategic Trade and Industrial Policy towards Dynamic Oligopolies," Economic Journal, Royal Economic Society, vol. 110(463), pages 484-508, April.
  2. Cordella, T. & Gabszewicz, J. J., . "Comparative advantage under oligopoly," CORE Discussion Papers RP 1286, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Dinopoulos, Elias & Segerstrom, Paul, 1996. "A Schumpeterian Model of Protection and Relative Wages," Working Paper Series 471, Research Institute of Industrial Economics.
  4. 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.
  5. Dixit, Avinash, 1980. "The Role of Investment in Entry-Deterrence," Economic Journal, Royal Economic Society, vol. 90(357), pages 95-106, March.
  6. Volker Nocke, 2000. "Monopolisation and Industry Structure," Econometric Society World Congress 2000 Contributed Papers 0429, Econometric Society.
  7. 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.
  8. Brander, James A., 1981. "Intra-industry trade in identical commodities," Journal of International Economics, Elsevier, vol. 11(1), pages 1-14, February.
  9. 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).
  10. 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).
  11. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  12. Leahy, Dermot & Neary, J Peter, 1996. "International R&D Rivalry and Industrial Strategy without Government Commitment," Review of International Economics, Wiley Blackwell, vol. 4(3), pages 322-38, October.
  13. Ekholm, Karolina & Ulltveit-Moe, Karen-Helene, 2001. "Relative Wages and Trade-Induced Changes in Technology," CEPR Discussion Papers 2677, C.E.P.R. Discussion Papers.
  14. 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.
  15. 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.
  16. Greenaway, David & Hine, Robert C. & Wright, Peter, 1999. "An empirical assessment of the impact of trade on employment in the United Kingdom," European Journal of Political Economy, Elsevier, vol. 15(3), pages 485-500, September.
  17. repec:dgr:rugccs:200215 is not listed on IDEAS
  18. Haskel, Jonathan, 2000. "The Trade and Labour Approaches to Wage Inequality," CEPR Discussion Papers 2476, C.E.P.R. Discussion Papers.
  19. Krugman, Paul R., 2000. "Technology, trade and factor prices," Journal of International Economics, Elsevier, vol. 50(1), pages 51-71, February.
  20. Wood, Adrian, 1995. "North-South Trade, Employment and Inequality: Changing Fortunes in a Skill-Driven World," OUP Catalogue, Oxford University Press, number 9780198290155.
  21. Spencer, Barbara J & Brander, James A, 1983. "International R & D Rivalry and Industrial Strategy," Review of Economic Studies, Wiley Blackwell, vol. 50(4), pages 707-22, October.
  22. Daron Acemoglu, 2003. "Patterns of Skill Premia," Review of Economic Studies, Wiley Blackwell, vol. 70(2), pages 199-230, 04.
  23. 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.
  24. Anthony B. Atkinson, 2000. "The Changing Distribution of Income: Evidence and Explanations," German Economic Review, Verein für Socialpolitik, vol. 1(1), pages 3-18, 02.
  25. Vives, Xavier, 1985. "On the efficiency of Bertrand and Cournot equilibria with product differentation," Journal of Economic Theory, Elsevier, vol. 36(1), pages 166-175, June.
  26. J.Peter Neary, 2001. "Of Hype and Hyperbolas: Introducing the New Economic Geography," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 536-561, June.
  27. 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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