Globalization, Roundaboutness, and Relative Wages
Tinbergen Institute Discussion Paper No. TI 2004-021/2
40 Pages Posted: 4 Mar 2004
Date Written: February 2004
We depart from the trade and wages literature and its emphasis on North-South trade, examining North-North by developing the basic linkages between trade-based integration and relative wages in an Ethier-type division of labor model. Using this model we identify a formal relationship between international trade, productivity, and wages. We then examine the trivariate relationship between trade, growth in total factor productivity (TFP), and the skill premium in a vector autoregression framework. We find evidence of a long-run relationship between growth in intermediate goods and changes in TFP. Controlling for this relationship we also find a positive relationship between trade and the skill-premium.
Keywords: Trade and wages, globalization, division of labor, monopolistic competition, intra-industry trade
JEL Classification: F16, F12
Suggested Citation: Suggested Citation