Trade Liberalization, Skill-linked Intermediate and Two-sided Wage Gap

Sugata Marjit and Rajat Achryya

Trade Working Papers from East Asian Bureau of Economic Research

Abstract: An interesting contemporary research question in trade theory deals with the possibility of rising wage inequality across the globe. A few possible explanations have been provided so far. We provide a natural explanation and a rigorous proof of the phenomenon by arguing that liberalizing trade in skill-linked intermediate product is likely to increase skilled-unskilled wage gap across the globe. Our model has the feature that a trade-induced shock can reduce the price of the skill-intensive traded good and raise the skilled-unskilled wage gap at the same time.

Keywords: liberalization; Skill-linked Intermediate; North-South Trade (search for similar items in EconPapers)
JEL-codes: F11 F13 J31 (search for similar items in EconPapers)
Date: 2005-01
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