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Skill Differentiation and Income Disparity in a Decentralized Matching Model of North-South Trade

Hesham Abdel-Rahman (), George Norman () and Ping Wang ()

No 131, Vanderbilt University Department of Economics Working Papers from Vanderbilt University Department of Economics

Abstract: This paper develops a North-South trade model in which the South produces food and the North produces both food and a high-tech good. Food production is undertaken by unskilled workers while the high-tech product is made only by horizontally differentiated skilled workers. Due to the possibility of a peer-group effect, we allow the unskilled workers in the North to be equally or more productive than in the South. Horizontal matching of skilled workers is generally imperfect and the skilled wages are determined by a symmetric Nash bargain. We characterize two different types of equilibrium: a closed-economy equilibrium without trade and a free trade equilibrium without labor mobility. We then extend the benchmark framework to consider the presence of transport costs. In all cases with trade, the equilibrium properties of goods pricing, the volume of trade and wage disparities are examined.

Keywords: Skill heterogeneity and matching; North-South trade; wage inequality (search for similar items in EconPapers)
JEL-codes: D51 D63 F10 J31 (search for similar items in EconPapers)
Date: 2001-12
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http://www.accessecon.com/pubs/VUECON/vu01-w31.pdf First version, 2001 (application/pdf)

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Working Paper: Skill Dierentiation and Income Disparity in a Decentralized Matching Model of North-South Trade (2001) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:van:wpaper:0131

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