Working Paper: CEPR ID: DP2527
Authors: Joseph Francois; Douglas Nelson
Abstract: 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.
Keywords: FDI and wages; globalization and employment; trade and employment; trade and wages
JEL Codes: F15; F16; J31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| intraindustry trade or FDI between identical countries (F23) | deterioration in the relative wages of unskilled workers (F66) |
| increased trade (F19) | lower relative wages for unskilled labor (F66) |
| integration of industrial economies through trade and FDI (F02) | wage outcomes (J31) |