Globalization, product differentiation and wage inequality

Paulo Bastos and Odd Rune Straume

No 8/2010, NIPE Working Papers from NIPE - Universidade do Minho

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. Greater import competition increases innovation incentives, and thereby the relative demand for skill. An intraindustry trade expansion following trade liberalization can therefore increase wage inequality between skilled and unskilled workers. In addition, since product differentiation is resource consuming, freer trade entails a potential trade-off between production and variety. The import competition effect highlighted by the model, which plays a key role in determining the general equilibrium, is supported by panel data on Chilean manufacturing plants.

Keywords: Trade liberalization; Product differentiation; Innovation; Wage Inequality; General Oligopolistic Equilibrium. (search for similar items in EconPapers)
JEL-codes: F15 F16 L13 O31 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-bec and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Globalization, product differentiation, and wage inequality (2012)
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)
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