Preferential Trading and Real Wages

Review of International Economics, January 31, 1998

Posted: 1 May 1998

See all articles by Arvind Panagariya

Arvind Panagariya

University of Maryland - Department of Economics; Columbia University

Sethaput Suthiwart-Narueput

World Bank - Public Economics Division; Sasin GIBA


Following the Stolper-Samuelson type of logic, the general impression is that freeing up trade, whether preferentially as in the North American Free Trade Agreement (NAFTA) or on a nondiscriminatory basis as in the Uruguay Round, must lower real wages in one set of countries and raise them in the other set of countries. This paper shows that even within a standard three-country, three-good, small-union model, preferential trade liberalization can lead to increased real wages in both partner countries without necessarily relying on terms of trade improvements, increasing returns, complete specialization, or asymmetries in production technology.

JEL Classification: F14, J31

Suggested Citation

Panagariya, Arvind and Suthiwart-Narueput, Sethaput, Preferential Trading and Real Wages. Review of International Economics, January 31, 1998. Available at SSRN:

Arvind Panagariya

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States
301-405-3546 (Phone)
301-405 7835 (Fax)

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

Sethaput Suthiwart-Narueput (Contact Author)

World Bank - Public Economics Division ( email )

1818 H Street
Washington, DC 20433
United States
202-473 4604 (Phone)
202-522 1154 (Fax)

Sasin GIBA

Bangkok 10330

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