International Capital Flow, Vanishing Industries and Two‐Sided Wage Inequality
10 Pages Posted: 29 Nov 2013
Date Written: December 2013
This paper shows that international capital flow can lead to a rise in the relative wage between skilled and unskilled workers simultaneously in both capital‐exporting and capital‐importing nations. The impossibility of two‐sided wage inequality as an outcome of exogenous shocks has been previously discussed in the literature. We argue that such a result is highly probable when some industries vanish following changes in factor prices as a consequence of factor flows. The asymmetry in the nature of finite changes is the critical factor.
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