Non-traded goods, firm dynamics and wages in a service economy

ABSTRACT

By considering the term-of-trade and volume-of-trade effects, Jones (2012) examines the distributive effect in a competitive economy with non-traded goods. This paper reexamines the effect in an imperfectively competitive economy with firm dynamics. A rise in foreign demand can generate revenue and also mitigate market distortion, whereas skilled-unskilled wage inequality can be magnified or mitigated via the effect on firm entry or exit. Thus, how to achieve the trade-off among growth, inequality and the environment becomes an important task for government decision-makers, especially so during the pandemic of Covid-19. © 2021 Elsevier Inc.