Globalization, Wage Inequality and Unemployment

Abstract

Using the assumption that the vertical multinationals ship capital and intermediate goods from parent in Taiwan to subsidiaries in less-developed countries, this paper extends the_x000D_ Harris-Todaro model to analyze the impacts of globalization on wage inequality and_x000D_ unemployment. We find that an increase in the flows of capital from the parent country to the_x000D_ host country decreases the wage inequality of the parent country. In addition, we prove that an_x000D_ increase in the flows of capital discourages the urban unemployment of the parent and host_x000D_ countries.