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Trade Liberalization, Nature of Mergers and Employment

Author

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  • Joao Ricardo Faria
  • Halis Murat Yildiz

Abstract

This paper develops a simple two-country model in which each economy consists of two sectors: a competitive non-tradable sector and an oligopolistic tradable sector. We investigate two related issues that arise in response to trade liberalization. First, we examine the linkage between trade liberalization and the nature of merger incentives in the oligopolistic tradable sector. We find that trade liberalization changes the industry structure leading to cross border mergers. Next, we explore the impact of this change on the labour market of the competitive non-tradable sector. It is found that the employment and wage impacts of the fall in the price of tradable goods depend on the price elasticity of demand for tradable goods and non-tradable goods, and the share of the tradable intermediate goods in the total cost of production of non-tradables. As a result, the positive employment impact is certain only if the demand for tradable goods is inelastic, while labour and tradable intermediate goods are complements.

Suggested Citation

  • Joao Ricardo Faria & Halis Murat Yildiz, 2005. "Trade Liberalization, Nature of Mergers and Employment," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 14(1), pages 43-63.
    • Handle: RePEc:taf:jitecd:v:14:y:2005:i:1:p:43-63
    DOI: 10.1080/0963819042000333243
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    Citations

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    Cited by:

    1. Ray Chaudhuri, A. & Benchekroun, H., 2008. "Welfare Effect of Mergers and Trade Liberalization," Discussion Paper 2008-009, Tilburg University, Tilburg Law and Economic Center.
    2. Ulus Aysegul & Yildiz Halis M., 2012. "On the Relationship between Tariff Levels and the Nature of Mergers," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-40, December.
    3. Amrita Ray Chaudhuri & Hassan Benchekroun, 2012. "Welfare Effect of Mergers and Multilateral Trade Liberalization," Review of International Economics, Wiley Blackwell, vol. 20(1), pages 119-133, February.

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