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The Choice of Structural Model in Trade–Wages Decompositions

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  • Lisandro Abrego
  • John Whalley

Abstract

This paper uses a calibrated general equilibrium model to decompose observed wage changes from trade and technology shocks into portions attributable to each source. It highlights some difficulties with the numerical performance of widely used theoretical trade structures. For small economies, the Heckscher–Ohlin model reveals specialization problems unless the price changes accompanying trade shocks are small. It can also yield strikingly different decompositions of the same wage change. A differentiated‐goods model removes specialization problems and accommodates large price changes, but introduces demand‐side responses greatly reducing the effect of trade on wages, and performs implausibly with sector‐biased technical change.

Suggested Citation

  • Lisandro Abrego & John Whalley, 2000. "The Choice of Structural Model in Trade–Wages Decompositions," Review of International Economics, Wiley Blackwell, vol. 8(3), pages 462-477, August.
    • Handle: RePEc:bla:reviec:v:8:y:2000:i:3:p:462-477
    DOI: 10.1111/1467-9396.00235
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    Cited by:

    1. Ayodele, Olumide S. & Obafemi, Frances N., 2006. "Fiscal and Quasi-Fiscal Effects of the Parallel Exchange Premium in Nigeria," Conference papers 331503, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    2. Baulch, Bob & Chant, Lindsay & Robinson, Sherman, 2008. "What Happens Between the Waves? Estimating Inter-Wave Dynamics from Limited Survey Data with Application to Poverty Transitions in South Africa and Vietnam," Conference papers 331698, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    3. Terence Huw Edwards & John Whalley, 2007. "Short‐ And Long‐Run Decompositions Of Uk Wage Inequality Changes," Bulletin of Economic Research, Wiley Blackwell, vol. 59(1), pages 1-24, January.

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