Divergence, Wage-Gap and Geography

Frederic Andres

Economie Internationale, 2006, issue 108, 83-112

Abstract: We develop a geographic growth model where nominal wages are allowed to diverge between the two considered countries. Removing the standard assumption entailing that both countries always own a traditional sector, we argue that, as trade gets freer, the traditional sector of one country might cease to exist so that wages increase: it gives rise to an additional dispersion force independent of trade costs. Hence, the core-periphery outcome might never be reached, which contradicts previous literature’s results. We also question a hallmark of the literature since we argue that full agglomeration of firms might actually lead to slower growth for both countries.

Keywords: Wage differential; new economic geography; endogenous growth; knowledge spillovers (search for similar items in EconPapers)
JEL-codes: F15 O41 R11 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (1)

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