Globalization, product differentiation, and wage inequality

Paulo Bastos and Odd Rune Straume

Canadian Journal of Economics/Revue canadienne d'économique, 2012, vol. 45, issue 3, 857-878

Abstract: 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. On développe un modèle d’équilibre général pour deux pays d’un oligopole dans lequel le degré de différenciation des produits est engendré de manière endogène par les investissements stratégiques des firmes dans l’innovation de produits. Les consommateurs recherchent la variété, et l’innovation de produits est une activité qui fait un usage plus intensif de qualifications que la production. Une forte concurrence de l’importation accroît l’incitation à innover, et en conséquence la demande relative pour la main d’œuvre qualifiée. L’expansion du commerce intra‐industrie qui suit la libéralisation des échanges peut donc accroître l’inégalité des salaires entre travailleurs qualifiés ou non. Tant que certaines industries demeurent protégées de la concurrence internationale, les implications pour le bien‐être de la mondialisation sont généralement ambiguës.

Date: 2012
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Citations: View citations in EconPapers (17)

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https://doi.org/10.1111/j.1540-5982.2012.01718.x

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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Persistent link: https://EconPapers.repec.org/RePEc:wly:canjec:v:45:y:2012:i:3:p:857-878

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