Discussion Paper Details

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Title: Foreign Competition and Wage Inequality

Author(s): J Peter Neary

Publication Date: June 2002

Keyword(s): general oligopolistic equilibrium (GOLE), skill premia, skill-based technical progress, strategic investment and trade and wages

Programme Area(s): International Trade and Regional Economics

Abstract: I argue that increased foreign competition can affect technical choice and skill differentials even when actual imports do not rise significantly. I present a model of General Oligopolistic Equilibrium (?GOLE?) in which a reduction in import barriers (whether technological or policy-imposed) encourages more strategic investment by incumbent firms. The predictions accord with many of the stylised facts: higher skill premia; higher ratios of skilled to unskilled workers employed in all sectors and throughout the economy; little change in import volumes or prices; and rapid technological progress with rather little change in total factor productivity.

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Bibliographic Reference

Neary, J. 2002. 'Foreign Competition and Wage Inequality'. London, Centre for Economic Policy Research.