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Globalization, product differentiation, and wage inequality

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Summary: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.
Main Authors:Bastos, Paulo
Other Authors:Straume, Odd Rune
Subject:F1 L1
Year:2012
Country:Portugal
Document type:article
Access type:restricted access
Associated institution:Universidade do Minho
Language:English
Origin:RepositóriUM - Universidade do Minho

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