Information and Globalization: Wage Co-Movements, Labor Demand Elasticity, and Conventional Trade Liberalization

James Rauch and Vitor Trindade ()

No 7671, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We model home country familiarity with business opportunities in a foreign country as a parameter in a matching process between domestic and foreign firms. We show that as familiarity increases the effect of relative national labor supplies on relative national wages declines, the elasticity of domestic labor demand increases, and the extent of pass-through' of trade tax changes to home wages increases. Since the volume of trade is increasing in familiarity, trade liberalization has a greater impact on wages when the initial volume of trade is greater, all else equal. As familiarity becomes complete, the results of the 2 x 2 Heckscher-Ohlin-Samuelson model are obtained: relative national wages are fixed by trade taxes independent of relative national labor supplies, domestic labor demand is infinitely elastic, and pass-through of tax changes to wages is complete' in the sense that it is determined entirely by production technology and no arbitrage opportunities remain.

JEL-codes: F15 F16 (search for similar items in EconPapers)
Date: 2000-04
New Economics Papers: this item is included in nep-lab
Note: ITI LS
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Published as "Information, International Substitutability, and Globalization", American Economic Review, Vol. 93 (June 2003), pp. 775-791.

Downloads: (external link)
http://www.nber.org/papers/w7671.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:7671

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w7671

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().