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The Choice of Structural Model in Trade-Wages Decompositions

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  • Lisandro Abrego
  • John Whalley

Abstract

This paper explores the use of structural models as an alternative to reduced form methods when decomposing observed joint trade and technology driven wage changes into components attributable to each source. Conventional mobile factors Heckscher-Ohlin models typically reveal problems of specialisation unless price changes accompanying trade shocks are small, and can also produce wide ranges for the decomposition for parameterisations consistent with the joint change. A differentiated goods model which generalises Heckscher-Ohlin removes problems of specialisation and concentrates the range of decompositions more narrowly, but introduces larger demand side responses to trade shocks which greatly reduce the effect of trade. The conclusion offered is that the choice of structural model matters for decomposing observed wage changes into trade and technology components, and that reduced-form methods which do not discriminate between alternative structural models may not be that informative for such decompositions.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7312.

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Date of creation: Aug 1999
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Publication status: published as Abrego, Lisandro & Whalley, John, 2000. "The Choice of Structural Model in Trade-Wages Decompositions," Review of International Economics, Blackwell Publishing, vol. 8(3), pages 462-77, August.
Handle: RePEc:nbr:nberwo:7312

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Cited by:
  1. Christian Arnault Émini & Dorine Kanmi Feunou, 2008. "Décomposition des effets des politiques économiques sur l'évolution de la pauvreté au Cameroun: une analyse en équilibre général micro-simulé avec double calibration," Working Papers MPIA, PEP-MPIA 2008-18, PEP-MPIA.
  2. Stephen Tokarick, 2002. "Quantifying the Impact of Tradeon Wages," IMF Working Papers 02/191, International Monetary Fund.
  3. Thierfelder, Karen & Robinson, Sherman, 2002. "Trade and the skilled-unskilled wage gap in a model with differentiated goods," TMD discussion papers, International Food Policy Research Institute (IFPRI) 96, International Food Policy Research Institute (IFPRI).
  4. Hui Huang & John Whalley, 2003. "The Use of Literature Based Elasticity Estimates in Calibrated Models of Trade-Wage Decompositions: A Calibmetric Approach," NBER Working Papers 10137, National Bureau of Economic Research, Inc.
  5. T. Huw Edwards & John Whalley, 2003. "Short and Long Run Decompositions of OECD Wage Inequality Changes," UWO Department of Economics Working Papers, University of Western Ontario, Department of Economics 20032, University of Western Ontario, Department of Economics, revised Sep 2002.
  6. Michael Pflüger, 2001. "Trade, capital mobility, and the German labour market," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 137(3), pages 473-500, September.
  7. Niven Winchester, 2006. "Trade and Rising Wage Inequality: What can we learn from a Decade of Computable General Equilibrium Analysis?," Working Papers, University of Otago, Department of Economics 0606, University of Otago, Department of Economics, revised Oct 2006.
  8. Lisandro Abrego & John Whalley, 2002. "Decomposing Wage Inequality Change Using General Equilibrium Models," NBER Working Papers 9184, National Bureau of Economic Research, Inc.
  9. Thierfelder, Karen & Robinson, Sherman, 2002. "Trade and tradability," TMD discussion papers, International Food Policy Research Institute (IFPRI) 93, International Food Policy Research Institute (IFPRI).
  10. Dirk Velde, 2001. "Foreign direct investment and factor prices in U.S. manufacturing," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 137(4), pages 622-643, December.
  11. Lisandro Abrego & John Whalley, 2000. "Demand Side Considerations and the Trade and Wages Debate," NBER Working Papers 7674, National Bureau of Economic Research, Inc.
  12. Scott, Ewan & Emerson, Robert D., 2001. "Wage Differentials And Trade Relationships In Jamaica: Applications Of Truncated Regression Models And Repeated Cross-Section Data," 2001 Annual meeting, August 5-8, Chicago, IL, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) 20475, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  13. Sang-Wook (Stanley) Cho & Juliàn P. Dìaz, 2014. "Accounting for Skill Premium Patterns during the EU Accession: Productivity or Trade?," Discussion Papers, School of Economics, The University of New South Wales 2014-14, School of Economics, The University of New South Wales.
  14. Niven Winchester & David Greenaway & Geoffrey V. Reed, 2006. "Skill Classification and the Effects of Trade on Wage Inequality," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 142(2), pages 287-306, July.
  15. Winchester, Niven & Greenaway, David, 2007. "Rising wage inequality and capital-skill complementarity," Journal of Policy Modeling, Elsevier, Elsevier, vol. 29(1), pages 41-54.
  16. Michael Pflüger, 2003. "Trade, Technology and Labour Markets: Empirical Controversies in the Light of the Jones Model," Discussion Papers of DIW Berlin 328, DIW Berlin, German Institute for Economic Research.
  17. Emini, Christian Arnault & Kanmi Feunou, Dorine, 2008. "Decomposing the Effects of Economic Policies on Poverty Trends in Cameroon: A Double Calibration Micro Simulated General Equilibrium Analysis," MPRA Paper 14820, University Library of Munich, Germany.

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