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Variety Trade and Skill Premium in a Calibrated General Equilibrium Model: The Case of Mexico

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Manoj Atolia
Yoshinori Kurokawa

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Abstract

It can be theoretically shown that variety trade can be a possible source of increased skill premium in wages. No past studies, however, have empirically quantified how much of the increase in skill premium can be accounted for by the increase in variety trade. This paper now formulates a static general equilibrium model and then calibrates it to the Mexican input-output matrix for 1987. In the calibrated model, our numerical experiments show that the increase in U.S.-Mexican variety trade can explain approximately 12 percent of the actual increase in skill premium in Mexico from 1987 to 2000.

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Paper provided by Economics, Graduate School of Humanities and Social Sciences, University of Tsukuba in its series Tsukuba Economics Working Papers with number 2009-006.

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Date of creation: Mar 2009
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Handle: RePEc:tsu:tewpjp:2009-006

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Postal: 1-1-1 Tennodai, Tsukuba, Ibaraki 305-8571
Web page: http://www.econ.tsukuba.ac.jp/
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