DP4406 Globalization, Roundaboutness and Relative Wages

Author(s): Joseph Francois , Kevin Blaine Grier , Douglas Nelson

Publication Date: June 2004

Keyword(s): trade and wages , globalization , division of labour , monopolistic competition , intra-industry trade

JEL(s): F12 , F16

Programme Areas: International Trade and Regional Economics , Labour Economics

Link to this Page: www.cepr.org/pubs/dps/DP4406.asp

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.