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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. Conventiona 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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Bibliographic Info

Paper provided by Centre for the Study of Globalisation and Regionalisation (CSGR), University of Warwick in its series CSGR Working papers series with number 34/99.

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Date of creation: May 1999
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Handle: RePEc:wck:wckewp:34/99

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Keywords: Wage inequality; trade; technology.;

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Citations

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Cited by:
  1. Sang-Wook (Stanley) Cho & Juliàn P. Dìaz, 2014. "Accounting for Skill Premium Patterns during the EU Accession: Productivity or Trade?," Discussion Papers 2014-14, School of Economics, The University of New South Wales.
  2. Edwards, T Huw & John Whalley, 2003. "Short and Long Run Decomposition of OECD Wage Inequality Changes," Royal Economic Society Annual Conference 2003 72, Royal Economic Society.
  3. Lisandro Abrego & John Whalley, 2002. "Decomposing Wage Inequality Change Using General Equilibrium Models," University of Western Ontario, Economic Policy Research Institute Working Papers 20022, University of Western Ontario, Economic Policy Research Institute.
  4. 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 2008-18, PEP-MPIA.
  5. Thierfelder, Karen & Robinson, Sherman, 2002. "Trade and tradability," TMD discussion papers 93, International Food Policy Research Institute (IFPRI).
  6. 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 20475, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  7. 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, vol. 142(2), pages 287-306, July.
  8. 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.
  9. Stephen Tokarick, 2002. "Quantifying the Impact of Tradeon Wages," IMF Working Papers 02/191, International Monetary Fund.
  10. Niven Winchester, 2006. "Trade and Rising Wage Inequality: What can we learn from a Decade of Computable General Equilibrium Analysis?," Working Papers 0606, University of Otago, Department of Economics, revised Oct 2006.
  11. Hui Huang & John Whalley, 2004. "The Use of Literature Based Elasticity Estimates in Calibrated Models of Trade-Wage Decompositions: A Calibmetric Approach," DEGIT Conference Papers c009_007, DEGIT, Dynamics, Economic Growth, and International Trade.
  12. Dirk Velde, 2001. "Foreign direct investment and factor prices in U.S. manufacturing," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 137(4), pages 622-643, December.
  13. 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.
  14. Lisandro Abrego & John Whalley, 2000. "Demand Side Considerations and the Trade and Wages Debate," NBER Working Papers 7674, National Bureau of Economic Research, Inc.
  15. Thierfelder, Karen & Robinson, Sherman, 2002. "Trade and the skilled-unskilled wage gap in a model with differentiated goods," TMD discussion papers 96, International Food Policy Research Institute (IFPRI).
  16. Winchester, Niven & Greenaway, David, 2007. "Rising wage inequality and capital-skill complementarity," Journal of Policy Modeling, Elsevier, vol. 29(1), pages 41-54.
  17. Michael Pflüger, 2001. "Trade, capital mobility, and the German labour market," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 137(3), pages 473-500, September.

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