Economic integration, product cycles and regime effects

By adopting the modified north-south product cycle model of Grossman and Helpman (G&H, hereafter) (1991a) and adding “two-way” FDIs to form a complete economic integration, we obtain the opposite conclusion for such regime effects from that of both Krugman (1979) and G&H (1991b) in different frameworks, while G&H (1991a) have similar results in the same oligopolistic framework (without FDIs) we adopt. This demonstrates that the relative wage rate between the north and south will not be affected by the size of labor markets and that there are no regime effects on relative wage rate, regardless of their existing FDIs.