The Effects of Trade Liberalisation in a Vertical Structure

39 Pages Posted: 11 Dec 2010

See all articles by Liu Yao

Liu Yao

affiliation not provided to SSRN

Arijit Mukherjee

University of Nottingham - School of Economics

Date Written: December 8, 2010

Abstract

Despite the importance of international trade on intermediate goods, the literature did not pay much attention to this aspect in determining the effects of trade liberalisation in the presence of labour unions. We take up this issue here and show the effects of trade liberalisation on the final goods and/or the intermediate goods, where the domestic firm pays unionised wage and imports intermediate goods from another country. We show that trade liberalisation on the intermediate goods (final goods) increases (reduces) the unionised wage, labour union’s utility and the domestic profit. Trade liberalisation on both the final goods and intermediate goods may either increase or reduce the domestic unionised wage, labour union’s utility and the domestic profit depending on the input coefficients and the initial tariff levels. Our qualitative results are robust with respect to the intermediate goods market structure, the pricing strategy of the intermediate goods producer, the union’s objective function and input substitution, yet they affect the results quantitatively.

Keywords: Intermediate good, Labour union, Trade liberalisation

JEL Classification: F12, L11, J50

Suggested Citation

Yao, Liu and Mukherjee, Arijit, The Effects of Trade Liberalisation in a Vertical Structure (December 8, 2010). Available at SSRN: https://ssrn.com/abstract=1722088 or http://dx.doi.org/10.2139/ssrn.1722088

Liu Yao

affiliation not provided to SSRN ( email )

Arijit Mukherjee (Contact Author)

University of Nottingham - School of Economics ( email )

University Park
Nottingham, NG7 2RD
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+44 115 9514159 (Fax)

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