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Tariff reductions, trade patterns and the wage gap

Author

Listed:
  • Francesco Di Comite

    (European Commission,Joint Research Centre and Institute for Prospective Technological Studies (IPTS))

  • Antonella Nocco

    (University of Salento, Department of Management, Economics, Mathematics and Statistics, Ecotekne)

  • Gianluca Orefi ce

    (CEPII)

Abstract

This paper studies the impact of trade liberalization on labor market outcomes. First, we find that bilateral trade liberalization does not affect exports towards third countries. To accommodate this novel result, we deviate from existing literature and rely on a three-country monopolistic competition framework with variable elasticity of substitution and vertical linkages in fixed costs. The resulting model predicts that trade liberalization is associated with an increase in the skill-driven wage gap and a reduction in unskilled employment. This prediction is empirically validated using EU-KLEMS data on country-sector wage by skill level on 17 OECD countries from 1996 to 2005.

Suggested Citation

  • Francesco Di Comite & Antonella Nocco & Gianluca Orefi ce, 2015. "Tariff reductions, trade patterns and the wage gap," LIDAM Discussion Papers IRES 2015004, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    • Handle: RePEc:ctl:louvir:2015004
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    File URL: http://sites.uclouvain.be/econ/DP/IRES/2015004.pdf
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    References listed on IDEAS

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    Cited by:

    1. A. Shapoval & V. M. Goncharenko, 2020. "Industry equilibrium and welfare in monopolistic competition under uncertainty," Journal of Economics, Springer, vol. 130(2), pages 187-218, July.

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    More about this item

    Keywords

    PTAs; Vertical linkages; Trade diversion; Trade creation; Wage gap;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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