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Firm heterogeneity, trade, and wage inequality

  • Unel, Bulent

This paper considers a world of symmetric countries with two factors of production and two sectors. Outputs of the two sectors are imperfect substitutes and the sectors differ in relative factor intensity. Each sector contains a continuum of heterogeneous firms that produce differentiated goods within their sector. Trade is costly and there are both variable and fixed costs of exporting. The paper shows that under some plausible conditions supported by the data, trade between similar countries can increase the demand for skilled labor, which in turn increases the wage inequality between skilled and unskilled labor. The quantitative analysis suggests that such trade effects have played an important role in the increase in the US skill premium.

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File URL: http://www.sciencedirect.com/science/article/B6V85-4YMPX35-1/2/ff7bb76fa34cb15cc223b7ccd089efa1
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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 34 (2010)
Issue (Month): 8 (August)
Pages: 1369-1379

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Handle: RePEc:eee:dyncon:v:34:y:2010:i:8:p:1369-1379
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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  1. Kiminori Matsuyama, 2007. "Beyond Icebergs: Towards a Theory of Biased Globalization," Review of Economic Studies, Oxford University Press, vol. 74(1), pages 237-253.
  2. J Peter Neary, 2001. "Foreign Competition and Wage Inequality," Working Papers 200102, School Of Economics, University College Dublin.
  3. Yeaple, Stephen & Helpman, Elhanan & Melitz, Marc, 2004. "Export versus FDI with Heterogeneous Firms," Scholarly Articles 3229098, Harvard University Department of Economics.
  4. Andrew B. Bernard & Stephen Redding & Peter K. Schott, 2004. "Comparative Advantage and Heterogeneous Firms," NBER Working Papers 10668, National Bureau of Economic Research, Inc.
  5. Daron Acemoglu, 1998. "Why Do New Technologies Complement Skills? Directed Technical Change And Wage Inequality," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 1055-1089, November.
  6. J Bradford Jensen & Andrew B Bernard, 2001. "Why Some Firms Export," Working Papers 01-05, Center for Economic Studies, U.S. Census Bureau.
  7. Paul Krugman, 1995. "Growing World Trade: Causes and Consequences," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 327-377.
  8. Desjonqueres, Thibaut & Machin, Stephen & Van Reenen, John, 1999. " Another Nail in the Coffin? Or Can the Trade Based Explanation of Changing Skill Structures Be Resurrected?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(4), pages 533-54, December.
  9. Werner Antweiler & Daniel Trefler, 2000. "Increasing Returns and All That: A View From Trade," NBER Working Papers 7941, National Bureau of Economic Research, Inc.
  10. Jere R. Behrman & Nancy Birdsall & Miguel Székely, 2003. "Economic Policy and Wage Differentials in Latin America," Working Papers 29, Center for Global Development.
  11. Lu�s M B Cabral & Jos� Mata, 2003. "On the Evolution of the Firm Size Distribution: Facts and Theory," American Economic Review, American Economic Association, vol. 93(4), pages 1075-1090, September.
  12. Epifani, Paolo & Gancia, Gino, 2002. "The Skill Bias of World Trade," Seminar Papers 707, Stockholm University, Institute for International Economic Studies.
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  14. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2000. "Plants and Productivity in International Trade," Boston University - Institute for Economic Development 105, Boston University, Institute for Economic Development.
  15. Ariell Reshef, 2013. "Is Technological Change Biased Towards the Unskilled in Services? An Empirical Investigation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(2), pages 312-331, April.
  16. Per Krusell & Lee E. Ohanian & Jose-Victor Rios-Rull & Giovanni L. Violante, 1997. "Capital-skill complementarity and inequality: a macroeconomic analysis," Staff Report 239, Federal Reserve Bank of Minneapolis.
  17. Richard E. Baldwin & Frédéric Robert-Nicoud, 2006. "Trade and Growth with Heterogenous Firms," NBER Working Papers 12326, National Bureau of Economic Research, Inc.
  18. Daron Acemoglu, 2000. "Technical Change, Inequality, and the Labor Market," NBER Working Papers 7800, National Bureau of Economic Research, Inc.
  19. David Autor & Lawrence Katz & Alan Krueger, 1997. "Computing Inequality: Have Computers Changed the Labor Market?," Working Papers 756, Princeton University, Department of Economics, Industrial Relations Section..
  20. Katz, Lawrence F & Murphy, Kevin M, 1992. "Changes in Relative Wages, 1963-1987: Supply and Demand Factors," The Quarterly Journal of Economics, MIT Press, vol. 107(1), pages 35-78, February.
  21. Daron Acemoglu, 2002. "Directed Technical Change," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 781-809.
  22. Bound, John & Johnson, George, 1992. "Changes in the Structure of Wages in the 1980's: An Evaluation of Alternative Explanations," American Economic Review, American Economic Association, vol. 82(3), pages 371-92, June.
  23. Ventura, Jaume, 1997. "Growth and Interdependence," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 57-84, February.
  24. Antonio Ciccone & Giovanni Peri, 2004. "Long-run substitutability between more and less educated workers: Evidence from U.S. States 1950-1990," Economics Working Papers 764, Department of Economics and Business, Universitat Pompeu Fabra.
  25. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
  26. Wood, Adrian, 1998. "Globalisation and the Rise in Labour Market Inequalities," Economic Journal, Royal Economic Society, vol. 108(450), pages 1463-82, September.
  27. Miguel Székely & Nancy Birdsall & Jere R. Behrman, 2000. "Economics Reform and Wage Differentials in Latin America," Research Department Publications 4235, Inter-American Development Bank, Research Department.
  28. Donald S. Siegel & Catherine J. Morrison Paul, 1999. "Scale Economies and Industry Agglomeration Externalities: A Dynamic Cost Function Approach," American Economic Review, American Economic Association, vol. 89(1), pages 272-290, March.
  29. Choi, E. Kwan & Harrigan, James, 2003. "Handbook of International Trade," Staff General Research Papers 11375, Iowa State University, Department of Economics.
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