Zusammenfassung
The entry of a low-wage country into a world economy with preexisting wage differentials puts the gains from trade in a former low-wage and then medium-wage country under pressure. If negotiations over the formation of a free trade area cover international transfers, there is a strong presumption that they bring about global free trade and compensation of the medium-wage country if necessary. In ...
Zusammenfassung
The entry of a low-wage country into a world economy with preexisting wage differentials puts the gains from trade in a former low-wage and then medium-wage country under pressure. If negotiations over the formation of a free trade area cover international transfers, there is a strong presumption that they bring about global free trade and compensation of the medium-wage country if necessary. In the absence of international transfers, by contrast, the medium-wage country is not compensated when global free trade causes a reduction in its gains from trade, and it may even happen that it is not part of the equilibrium free trade area.
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