Trade Policy, Income Volatility and Welfare
This paper studies empirically the relationship between trade policy and individual income risk and uses the empirical estimates of this relationship to asses the welfare costs of changes in trade policy. The empirical analysis proceeds in two steps. First, longitudinal data on income of Mexican workers are used to estimate individual income risk in various manufacturing sectors. Second, the variation in income risk and trade barriers - both over time and across sectors - is used to arrive at estimates of the relationship between trade policy and individual income risk. Given the estimate of this relationship, a simple dynamic general equilibrium model with incomplete markets is used to calculate the associated welfare effects of changes in trade policy.
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|Date of creation:||11 Aug 2004|
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