The import and export price indices of an economy are usually compiled by some Laspeyres type index. It is well known that such an index formula is prone to substitution bias. Therefore, also the terms of trade (ratio of export and import price index) are likely to be distorted. The underlying...

Starting with Krugman (1980), much literature has analyzed how trade liberalization affects the economy based on the notion that trade is motivated by consumer’s love of variety. In this paper, I augment these preferences by the determinants of demand for heterogeneous products. The model...

We depart from the trade and wages literature and its emphasis on North-South trade, examining North-North by developing the basic linkages between trade-based integration and relative wages in an Ethier-type division of labor model. Using this model we identify a formal relationship between...