Globalization, product differentiation, and wage inequality

Paulo Bastos and Odd Rune Straume

Canadian Journal of Economics, 2012, vol. 45, issue 3, 857-878

Abstract: This paper develops a two-country, general equilibrium model of oligopoly in which the degree of horizontal product differentiation is endogenously determined by firms' strategic investments in product innovation. Consumers seek variety and product innovation is more skill intensive than production. Stronger import competition increases innovation incentives, and thereby the relative demand for skill. An intra-industry trade expansion following trade liberalization can therefore increase wage inequality between skilled and unskilled workers. As long as some industries remain shielded from international competition, the welfare implications of globalization are found to be generally ambiguous.

JEL-codes: F1 L1 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (22)

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Related works:
Journal Article: Globalization, product differentiation, and wage inequality (2012)
Working Paper: Globalization, Product Differentiation and Wage Inequality (2010)
Working Paper: Globalization, Product Differentiation and Wage Inequality (2010)
Working Paper: Globalization, product differentiation and wage inequality (2010)
Working Paper: Globalization, product differentiation and wage inequality (2010)
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