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Competition, Trade and Wages

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Neary, J Peter

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Abstract

I review briefly 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 C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2732.

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Date of creation: Mar 2001
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Handle: RePEc:cpr:ceprdp:2732

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Related research
Keywords: OECD Wage Inequality; Oligopolistic Competition; Skill Premia; Skill-Biased Technological Progress; Trade And Wages;

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Find related papers by JEL classification:
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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.:

  1. Joseph F. Francois & Douglas Nelson, 1998. "Trade, Technology, and Wages: General Equilibrium Mechanics," Tinbergen Institute Discussion Papers 98-058/2, Tinbergen Institute. [Downloadable!]
    Other versions:
  2. Hilde Vandenbussche & Jozef Konings, 1998. "Globalization and the effects of national versus international competition on the labour market. Theory and evidence from Belgian firm level data," Center for Economic Studies - Discussion papers ces9821, Katholieke Universiteit Leuven, Centrum voor Economische Studiën. [Downloadable!]
    Other versions:
  3. 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.
  4. Richard Harris, 1985. "Why Voluntary Export Restraints Are 'Voluntary.'," Canadian Journal of Economics, Canadian Economics Association, vol. 18(4), pages 799-809, November. [Downloadable!] (restricted)
  5. Paul Krugman, 1995. "Growing World Trade: Causes and Consequences," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1995-1), pages 327-377. [Downloadable!]
  6. Spencer, Barbara J & Brander, James A, 1983. "International R & D Rivalry and Industrial Strategy," Review of Economic Studies, Blackwell Publishing, vol. 50(4), pages 707-22, October. [Downloadable!] (restricted)
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  7. 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. [Downloadable!] (restricted)
  8. Dermot Leahy & J. Peter Neary, 2000. "Robust Rules for Industrial Policy in open Economies," Working Papers 200021, School Of Economics, University College Dublin. [Downloadable!]
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  9. Davis, Donald R., 1998. "Technology, unemployment, and relative wages in a global economy," European Economic Review, Elsevier, vol. 42(9), pages 1613-1633, November. [Downloadable!] (restricted)
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  10. Krishna, Kala, 1989. "Trade restrictions as facilitating practices," Journal of International Economics, Elsevier, vol. 26(3-4), pages 251-270, May. [Downloadable!] (restricted)
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  11. Robert C. Feenstra & Gordon H. Hanson, 1996. "Globalization, Outsourcing, and Wage Inequality," NBER Working Papers 5424, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. Ronald W. Jones, 1965. "The Structure of Simple General Equilibrium Models," Journal of Political Economy, University of Chicago Press, vol. 73, pages 557. [Downloadable!] (restricted)
  13. 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. [Downloadable!] (restricted)
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  14. 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. [Downloadable!] (restricted)
  15. Mathias Thoenig, 2000. "Trade Induced Technical Bias and Wage Inequalities: A Theory of Defensive Innovation," Econometric Society World Congress 2000 Contributed Papers 1931, Econometric Society. [Downloadable!]
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  16. Borjas, George J & Ramey, Valerie A, 1995. "Foreign Competition, Market Power, and Wage Inequality," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 1075-1110, November. [Downloadable!] (restricted)
  17. 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. [Downloadable!] (restricted)
  18. d'Aspremont, Claude & Dos Santos Ferreira, Rodolphe & Gerard-Varet, Louis-Andre, 1996. "On the Dixit-Stiglitz Model of Monopolistic Competition," American Economic Review, American Economic Association, vol. 86(3), pages 623-29, June. [Downloadable!] (restricted)
  19. Haskel, Jonathan, 2000. "The Trade and Labour Approaches to Wage Inequality," CEPR Discussion Papers 2476, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  20. 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, Blackwell Publishing, vol. 101(4), pages 533-54, December. [Downloadable!] (restricted)
  21. 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.
  22. Flam, Harry & Helpman, Elhanan, 1987. "Industrial policy under monopolistic competition," Journal of International Economics, Elsevier, vol. 22(1-2), pages 79-102, February. [Downloadable!] (restricted)
  23. 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. [Downloadable!] (restricted)
  24. 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. [Downloadable!] (restricted)
  25. Krugman, Paul R., 2000. "Technology, trade and factor prices," Journal of International Economics, Elsevier, vol. 50(1), pages 51-71, February. [Downloadable!] (restricted)
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  26. 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. [Downloadable!] (restricted)
  27. Lawrence, Colin & Spiller, Pablo T, 1983. "Product Diversity, Economies of Scale, and International Trade," The Quarterly Journal of Economics, MIT Press, vol. 98(1), pages 63-83, February. [Downloadable!] (restricted)
  28. 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. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, 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.)

  1. Donald Robbins, 2003. "The impact of trade liberalization upon inequality in developing countries - A review of theory and evidence–," DOCUMENTOS DE ECONOMÍA 003601, UNIVERSIDAD JAVERIANA - BOGOTÁ. [Downloadable!]
  2. Hoekman & Bernard & Winters, L. Alan, 2005. "Trade and employment : stylized facts and research findings," Policy Research Working Paper Series 3676, The World Bank. [Downloadable!]
    Other versions:
  3. Sebastián Claro, 2003. "Tariffs, Technology and Global Integration," Documentos de Trabajo 240, Instituto de Economía. Pontificia Universidad Católica de Chile.. [Downloadable!]
  4. Ugo Fratesi, 2004. "Regional policy from a supra-regional perspective," ERSA conference papers ersa04p509, European Regional Science Association. [Downloadable!]
    Other versions:
  5. Lionel Fontagne & Daniel Mirza, 2001. "International Trade and Rent Sharing in Developed and Developing countries," Working Papers 2001-09, CEPII research center. [Downloadable!]
    Other versions:
  6. Wilfred J. Ethier, 2002. "Globalization, Globalisation," Tinbergen Institute Discussion Papers 02-088/2, Tinbergen Institute. [Downloadable!]
  7. Denny, Kevin & Harmon, Colm & Lydon, Raemonn, 2002. "Cross Country Evidence on the Returns to Education: Patterns and Explanations," CEPR Discussion Papers 3199, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  8. 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. [Downloadable!] (restricted)
    Other versions:
  9. J. Peter Neary, 2000. "Monopolistic Competition and International Trade Theory," Working Papers 200025, School Of Economics, University College Dublin. [Downloadable!]
  10. Anthony B Atkinson, 2003. "Income Inequality in OECD Countries: Data and Explanations," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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