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Foreign Trade and Innovation in Domestic Labor Relations

Abstract For the most part, neoclassical trade theory has restricted its concerns to the effect that trade has on the production and distribution of commodities. It implicitly assumes that international trade leaves unchanged the institutional structure of domestic economies. The empirical evidence presented here supports the claim that international trade induces innovation in the institutions regulating the capital-labor relationship. Existing trade theories, neoclassical or otherwise, that assume away such changes give only a partial answer to one of the central questions a theory of trade must answer: What are the effects of trade, and are these effects beneficial?