DP2527 Victims of Progress: Economic Integration, Specialization and Wages for Unskilled Labour

Author(s): Joseph Francois, Doug R Nelson
Publication Date: August 2000
Keyword(s): FDI And Wages, Globalization And Employment, Trade And Employment, Trade And Wages
JEL(s): F15, F16, J31
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=2527

In this paper we demonstrate that intra-industry trade (or FDI) between identical countries could produce the observed deterioration in the relative wages of unskilled workers. This involves a model of North-North integration through either increased trade flows or increased MNE-based production. Our motivation in this regard is a series of arguments to the effect that trade cannot be responsible for the observed labour market trends because trade with developing countries is quantitatively too small to have significant labour market effects. We also introduce a relatively unexploited class of model that possesses attractive properties with respect to the explicit incorporation of firm-theoretic considerations in trade models.