GEP Research Paper 04/23
Globalization, Roundaboutness and Relative Wages
Joseph Francois, Kevin Grier and Douglas Nelson
Abstract
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 Ethier-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.
Issued in August 2004.
This paper is available in PDF format .