DP4406 Globalization, Roundaboutness and Relative Wages

Author(s): Joseph Francois, Kevin Blaine Grier, Douglas Nelson
Publication Date: June 2004
Keyword(s): division of labour, globalization, intra-industry trade, monopolistic competition, trade and wages
JEL(s): F12, F16
Programme Areas: Labour Economics, International Trade and Regional Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=4406

We depart from the trade and wages literature and its emphasis on North-South trade, examining North-North trade and linkages between trade-based integration and relative wages in an Etiher-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.