We depart from the trade and wages literature and its emphasis on North-South trade, examining North-North by developing the basic linkages between trade-based integration and relative wages in an Ethier-type division of labor model. Using this model we identify a formal relationship between international trade, productivity, and wages. We then examine the trivariate relationship between trade, growth in total factor productivity (TFP), and the skill premium in a vector autoregression framework. We find evidence of a long-run relationship between growth in intermediate goods and changes in TFP. Controlling for this relationship we also find a positive relationship between trade and the skill-premium.

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Tinbergen Institute Discussion Paper Series
Tinbergen Institute

François, J.F, Grier, K, & Nelson, D.R. (2004). Globalization, Roundaboutness, and Relative Wages (No. TI 04-021/2). Tinbergen Institute Discussion Paper Series. Retrieved from http://hdl.handle.net/1765/6661