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How Large is the Impact of Trade on Inequality? A New Factor Content of Trade Approach

Author

Listed:
  • Rodrigo Adao

    (University of Chicago Booth School of Business)

  • Arnaud Costinot

    (MIT)

  • Dave Donaldson

    (MIT)

  • Dina Pomeranz

    (University of Zurich)

  • Paul Carrillo

    (George Washington University)

Abstract

How are relative earnings across individuals (such as an economy’s collection of workers and firm owners) affected by openness to international trade? Extending the insights of Deardorff and Staiger (1988) to an arbitrary neoclassical economy, we develop a new theoretical framework for answering this question as a function of each individual’s factor content of trade and the economy’s factor demand system. We use a unique merged dataset (drawing on firm-to-firm transaction data, employer-employee matched data, owner-firm matched data, and firm-level customs transaction records) in order to measure the factor content of trade for each formal sector individual in Ecuador and to estimate the factor demand system for that country.

Suggested Citation

  • Rodrigo Adao & Arnaud Costinot & Dave Donaldson & Dina Pomeranz & Paul Carrillo, 2019. "How Large is the Impact of Trade on Inequality? A New Factor Content of Trade Approach," 2019 Meeting Papers 960, Society for Economic Dynamics.
    • Handle: RePEc:red:sed019:960
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