Do excessive wage increases raise imports?: Theory and evidence |
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Institution: | 1. Department of Agricultural Economics, Kyungpook National University, Republic of Korea;2. Department of Economics, School of Management, University of Alaska Fairbanks, United States |
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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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