Product Market Integration and Wage Formation

Product Market Integration and Wage Formation

This paper analyses the basic labour market inter-dependencies among countries with intra-industrial trade and imper fectly competitive product and labour markets. The paper stresses two major channels through which increased integration may affect product markets and therefore in turn labour markets. First, market entry becomes easier and/or less costly implying that m o re goods become traded goods. Second, market integration among economies already open to trade may reduce the explicit or implicit trade costs of selling in foreign markets. It is found that the two channels have different implications for wage formation. (JEL Classifications: F12, F15, J31, J51)