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Do excessive wage increases raise imports?:Theory and evidence

Authors
Journal
Japan and the World Economy
0922-1425
Publisher
Elsevier
Publication Date
Volume
18
Issue
2
Identifiers
DOI: 10.1016/j.japwor.2004.08.001
Keywords
  • Imports
  • Real Wages
  • Vertical Differentiation
  • Product Quality

Abstract

Abstract This paper uses a model of trade in vertically differentiated products to examine the effects of “excessive wage” increases (i.e. above productivity) on the volume of commodity imports. The model predicts that if the domestic country has comparative advantage in producing high quality varieties of some products, then “excessive wage” increases may result in a decrease in the volume of imports for these products. The empirical validity of the model's predictions is demonstrated with the use of disaggregated Japanese import data for the period 1967–1995. We also find that the aggregate volume of Japanese imports is not responsive to “excessive wage” changes.

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