Trade and Relative Wage in a Global Economy

Satya Das ()

Review of International Economics, 2003, vol. 11, issue 2, 397-411

Abstract: The effects of trade among similar countries and that among dissimilar countries on the relative wage are examined. Product quality is a choice variable by firms. Quantity production is assumed to satisfy constant costs, while quality production is more skilled‐labor intensive than quantity production and obeys increasing costs. Compared to autarky, free trade, by fostering more competition, leads to quality improvement, which in turn tends to increase the relative wage. Trade among similar countries increases the relative wage in all trading countries, while trade among dissimilar countries, in a two‐country model, increases it in one country but may increase or lower it in the other.

Date: 2003
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