International Capital Flow, Vanishing Industries and Two‐Sided Wage Inequality

10 Pages Posted: 29 Nov 2013

See all articles by Saibal Kar

Saibal Kar

Centre for Studies in Social Sciences, Calcutta; Institute of Labor Economics (IZA)

Sugata Marjit

Indian Institute of Foreign Trade; Centre for Studies in Social Sciences, Calcutta; City University of Hong Kong (CityUHK) - Department of Economics & Finance

Date Written: December 2013

Abstract

This paper shows that international capital flow can lead to a rise in the relative wage between skilled and unskilled workers simultaneously in both capital‐exporting and capital‐importing nations. The impossibility of two‐sided wage inequality as an outcome of exogenous shocks has been previously discussed in the literature. We argue that such a result is highly probable when some industries vanish following changes in factor prices as a consequence of factor flows. The asymmetry in the nature of finite changes is the critical factor.

Suggested Citation

Kar, Saibal and Marjit, Sugata, International Capital Flow, Vanishing Industries and Two‐Sided Wage Inequality (December 2013). Pacific Economic Review, Vol. 18, Issue 5, pp. 574-583, 2013, Available at SSRN: https://ssrn.com/abstract=2361225 or http://dx.doi.org/10.1111/1468-0106.12041

Saibal Kar

Centre for Studies in Social Sciences, Calcutta ( email )

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Sugata Marjit

Indian Institute of Foreign Trade ( email )

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Centre for Studies in Social Sciences, Calcutta ( email )

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