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Labor market institutions, firm-specific skills, and trade patterns

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  • Tang, Heiwai

Abstract

This paper studies how a country's labor market institutions, by affecting workers' skill acquisition, can shape its export patterns. I develop an open-economy model in which workers undertake non-contractible activities to acquire firm-specific skills on the job. In the model, labor market protection raises workers' incentives to acquire firm-specific skills relative to general skills, turning labor laws into a source of comparative advantage. In particular, the model shows that countries with more protective labor laws export relatively more in firm-specific skill-intensive sectors at both the intensive and extensive margins. To test the theoretical predictions, I construct sector proxies for the firm-specific and industry-specific skill intensity by estimating returns to firm tenure and industry tenure for different U.S. manufacturing sectors during the 1974–1993 period. By estimating sector-level gravity equations for 84 countries using the Helpman–Melitz–Rubinstein (2008) framework, I find evidence supporting the predicted effects of labor market institutions at both margins of exports.

Suggested Citation

  • Tang, Heiwai, 2012. "Labor market institutions, firm-specific skills, and trade patterns," Journal of International Economics, Elsevier, vol. 87(2), pages 337-351.
  • Handle: RePEc:eee:inecon:v:87:y:2012:i:2:p:337-351
    DOI: 10.1016/j.jinteco.2012.01.001
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    Cited by:

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    2. Gu, Ke & Stoyanov, Andrey, 2018. "Skills, Population Aging, and the Pattern of Trade," MPRA Paper 84349, University Library of Munich, Germany.
    3. Cardi, Olivier & Restout, Romain, 2015. "Imperfect mobility of labor across sectors: a reappraisal of the Balassa–Samuelson effect," Journal of International Economics, Elsevier, vol. 97(2), pages 249-265.
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    7. Murphy, Gavin & Siedschlag, Iulia & McQuinn, John, 2012. "Employment Protection and Innovation Intensity," Papers WP445, Economic and Social Research Institute (ESRI).
    8. Nunn, Nathan & Trefler, Daniel, 2014. "Domestic Institutions as a Source of Comparative Advantage," Handbook of International Economics, Elsevier.
    9. Antonio Ciccone & Elias Papaioannou, 2016. "Estimating Cross-Industry Cross-Country Interaction Models Using Benchmark Industry Characteristics," NBER Working Papers 22368, National Bureau of Economic Research, Inc.
    10. Carluccio, Juan & Bas, Maria, 2015. "The impact of worker bargaining power on the organization of global firms," Journal of International Economics, Elsevier, vol. 96(1), pages 162-181.
    11. Matilde Bombardini & Giovanni Gallipoli & German Pupato, 2012. "Skill Dispersion and Trade Flows," American Economic Review, American Economic Association, vol. 102(5), pages 2327-2348, August.
    12. Asuyama, Yoko, 2012. "Skill Distribution and Comparative Advantage: A Comparison of China and India," World Development, Elsevier, vol. 40(5), pages 956-969.
    13. Ioannides, Yannis M., 2018. "A DMP model of intercity trade," Labour Economics, Elsevier, vol. 50(C), pages 97-111.

    More about this item

    Keywords

    Labor market institutions; Margins of trade; Trade patterns; Firm-specific skills;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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