Discussion paper

DP4406 Globalization, Roundaboutness and Relative Wages

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.


Francois, J, D Nelson and K Grier (2004), ‘DP4406 Globalization, Roundaboutness and Relative Wages‘, CEPR Discussion Paper No. 4406. CEPR Press, Paris & London. https://cepr.org/publications/dp4406