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Trade Policy and Factor Prices: An Empirical Strategy

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  • Daniel Ortega

    ()
    (Center for Finance, Instituto de Estudios Superiores de Administración)

  • Francisco Rodríguez

    ()
    (Economics Department, Wesleyan University)

Abstract

This paper presents a new empirical strategy for estimating the effects of trade policy on domestic factor prices when policy endogeneity is suspected. Absent income effectson factor supplies or domestic prices, the coefficient on the terms of trade can provide an unbiased estimator of the effect of trade barriers on the factor distribution of income for a small economy. In the more general case where income effects are allowed for, we provide a means to quantify and control for the possible bias. We implement our strategy on a cross-national data set of trade policies and income shares of capital and labor. We find little evidence of the existence of Stolper-Samuelson effects, both for the sample as a whole as well as within cones of diversification. Consistent with a model of wage bargaining, we find that the effect of openness on capital shares is greater for countries with higher unionization rates.

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Bibliographic Info

Paper provided by Wesleyan University, Department of Economics in its series Wesleyan Economics Working Papers with number 2005-004.

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Length: 38 pages
Date of creation: Apr 2005
Date of revision:
Handle: RePEc:wes:weswpa:2005-004

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Related research

Keywords: Factor prices; trade policy; Stolper-Samuelson theorem; wage bargaining;

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References

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  1. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April.
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  11. Douglas A. Irwin, 2000. "Ohlin Versus Stolper-Samuelson?," NBER Working Papers 7641, National Bureau of Economic Research, Inc.
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  13. Bound, John, et al, 1994. "Evidence on the Validity of Cross-Sectional and Longitudinal Labor Market Data," Journal of Labor Economics, University of Chicago Press, vol. 12(3), pages 345-68, July.
  14. Donald R. Davis, 1996. "Trade Liberalization and Income Distribution," Harvard Institute of Economic Research Working Papers 1769, Harvard - Institute of Economic Research.
  15. Eugene Beaulieu, 2002. "Factor or Industry Cleavages in Trade Policy? An Empirical Analysis of the Stolper-Samuelson Theorem," Economics and Politics, Wiley Blackwell, vol. 14(2), pages 99-131, 07.
  16. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
  17. Jones, Ronald W. & Peter Neary, J., 1984. "The positive theory of international trade," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 1, pages 1-62 Elsevier.
  18. Arvind Panagariya, 2003. "Trade Openness: Consequences for the Elasticity of Demand for Labor and Wage Outcomes," International Trade 0308007, EconWPA.
  19. Nikaido, Hukukane, 1972. "Relative shares and factor price equalization," Journal of International Economics, Elsevier, vol. 2(3), pages 257-263, August.
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