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Factor Prices and International Trade: A Unifying Perspective

  • Ariel Burstein
  • Jonathan Vogel

How do trade liberalizations affect relative factor prices and to what extent do they cause factors to reallocate across sectors? We first present a general framework that nests a wide range of models that have been used to study the link between globalization and factor prices. Under some restrictions, changes in the "factor content of trade" are sufficient statistics for the impact of trade on relative factor prices. We then study the determination of the factor content of trade in a specific version of our general framework featuring imperfect competition, increasing returns to scale, and heterogeneous producers. We show how heterogeneous firms' decisions shape the factor content of trade, and, therefore, the impact of trade liberalization on relative factor prices and between-sector factor allocation.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16904.

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Date of creation: Mar 2011
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Handle: RePEc:nbr:nberwo:16904
Note: EFG IFM ITI
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  1. Andrew Atkeson & Ariel Burstein, 2007. "Innovation, firm dynamics, and international trade," NBER Working Papers 13326, National Bureau of Economic Research, Inc.
  2. Elhanan Helpman & Oleg Itskhoki & Stephen Redding, 2010. "Inequality and Unemployment in a Global Economy," Econometrica, Econometric Society, vol. 78(4), pages 1239-1283, 07.
  3. Paolo Epifani & Gino Gancia, 2006. "Increasing Returns, Imperfect Competition, and Factor Prices," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 583-598, November.
  4. Arnaud Costinot & Jonathan Vogel, 2009. "Matching and Inequality in the World Economy," NBER Working Papers 14672, National Bureau of Economic Research, Inc.
  5. Ariel Burstein & Jonathan Vogel, 2010. "Globalization, Technology, and the Skill Premium: A Quantitative Analysis," NBER Working Papers 16459, National Bureau of Economic Research, Inc.
  6. Fernando Parro, 2013. "Capital-Skill Complementarity and the Skill Premium in a Quantitative Model of Trade," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(2), pages 72-117, April.
  7. Per Krusell & Lee E. Ohanian & JosÈ-Victor RÌos-Rull & Giovanni L. Violante, 2000. "Capital-Skill Complementarity and Inequality: A Macroeconomic Analysis," Econometrica, Econometric Society, vol. 68(5), pages 1029-1054, September.
  8. Gordon H. Hanson & Robert C. Feenstra, 2000. "Aggregation Bias in the Factor Content of Trade: Evidence from U.S. Manufacturing," American Economic Review, American Economic Association, vol. 90(2), pages 155-160, May.
  9. Deardorff, Alan V. & Staiger, Robert W., 1988. "An interpretation of the factor content of trade," Journal of International Economics, Elsevier, vol. 24(1-2), pages 93-107, February.
  10. 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.
  11. Epifani, Paolo & Gancia, Gino, 2002. "The Skill Bias of World Trade," Seminar Papers 707, Stockholm University, Institute for International Economic Studies.
  12. John Romalis, 2004. "Factor Proportions and the Structure of Commodity Trade," American Economic Review, American Economic Association, vol. 94(1), pages 67-97, March.
  13. Costas Arkolakis, 2008. "Market Penetration Costs and the New Consumers Margin in International Trade," NBER Working Papers 14214, National Bureau of Economic Research, Inc.
  14. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, vol. 98(4), pages 1707-21, September.
  15. Davidson, Carl & Matusz, Steven J. & Shevchenko, Andrei, 2008. "Globalization and firm level adjustment with imperfect labor markets," Journal of International Economics, Elsevier, vol. 75(2), pages 295-309, July.
  16. Ariel Burstein & Javier Cravino & Jonathan Vogel, 2011. "Importing Skill-Biased Technology," NBER Working Papers 17460, National Bureau of Economic Research, Inc.
  17. Trefler, Daniel & Zhu, Susan Chun, 2010. "The structure of factor content predictions," Journal of International Economics, Elsevier, vol. 82(2), pages 195-207, November.
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