TITLE:
Intra-Industry Trade, Consumer Demand and Wage Inequality
AUTHORS:
Hasan A Faruq
KEYWORDS:
Intra-Industry Trade, Wage Inequality, Monopolistic Competition
JOURNAL NAME:
Theoretical Economics Letters,
Vol.9 No.5,
June
10,
2019
ABSTRACT:
Numerous studies [1] [2] [3] [4] have shown that automation and college education may be a bigger
contributor to wage-inequality than international trade. Most of these models
of trade focus on “comparative-advantage” based trade (i.e. trade in different products). Although much of world-trade is
“intra-industry” (i.e. trade broadly
in the same industry) in nature, relatively fewer
studies have examined the relationship between wage-inequality and intra-industry
trade. This study examines the relationship between intra-industry trade and wage-inequality, using a two-sector model
of monopolistic competition. Unlike previous research, this study examines this
relationship through a lens that has not been explored much in the previous
literature: differences in consumer demand,
which can arise from factors such as demographic differences (e.g.
whether a population is young or aging) between trade partners. My model
suggests that: 1) intra-industry trade may be associated with wage-inequality between two sectors in the same country, 2)
the magnitude of wage-inequality may depend on the differences in consumer
demand in the countries that engage in international trade, and 3)
wage-inequality can arise between sectors even if all workers have
similar skills to begin with. These preliminary results may have some
interesting implications for future research in the international trade
literature.