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The Choice of Structural Model in Trade-Wages Decompositions

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  • Lisandro Abrego
  • John Whalley

Abstract

This paper explores the use of structural models as an alternative to reduced form methods when decomposing observed joint trade and technology driven wage changes into components attributable to each source. Conventional mobile factors Heckscher-Ohlin models typically reveal problems of specialisation unless price changes accompanying trade shocks are small, and can also produce wide ranges for the decomposition for parameterisations consistent with the joint change. A differentiated goods model which generalises Heckscher-Ohlin removes problems of specialisation and concentrates the range of decompositions more narrowly, but introduces larger demand side responses to trade shocks which greatly reduce the effect of trade. The conclusion offered is that the choice of structural model matters for decomposing observed wage changes into trade and technology components, and that reduced-form methods which do not discriminate between alternative structural models may not be that informative for such decompositions.

Suggested Citation

  • Lisandro Abrego & John Whalley, 1999. "The Choice of Structural Model in Trade-Wages Decompositions," NBER Working Papers 7312, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:7312
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    Cited by:

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    2. Hui Huang & John Whalley, 2003. "The Use of Literature Based Elasticity Estimates in Calibrated Models of Trade-Wage Decompositions: A Calibmetric Approach," NBER Working Papers 10137, National Bureau of Economic Research, Inc.
    3. Scott, Ewan & Emerson, Robert D., 2001. "Wage Differentials And Trade Relationships In Jamaica: Applications Of Truncated Regression Models And Repeated Cross-Section Data," 2001 Annual meeting, August 5-8, Chicago, IL 20475, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    4. Emini, Christian Arnault & Kanmi Feunou, Dorine, 2008. "Decomposing the Effects of Economic Policies on Poverty Trends in Cameroon: A Double Calibration Micro Simulated General Equilibrium Analysis," MPRA Paper 14820, University Library of Munich, Germany.
    5. Lisandro Abrego & John Whalley, 2000. "Demand Side Considerations and the Trade and Wages Debate," NBER Working Papers 7674, National Bureau of Economic Research, Inc.
    6. Karen Thierfelder & Sherman Robinson, 2003. "Trade and Tradability: Exports, Imports, and Factor Markets in the Salter‐Swan Model," The Economic Record, The Economic Society of Australia, vol. 79(244), pages 103-111, March.
    7. Michael Pflüger, 2001. "Trade, capital mobility, and the German labour market," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 137(3), pages 473-500, September.
    8. Niven Winchester & David Greenaway & Geoffrey V. Reed, 2006. "Skill Classification and the Effects of Trade on Wage Inequality," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 142(2), pages 287-306, July.
    9. Christian Arnault Émini & Dorine Kanmi Feunou, 2008. "Décomposition des effets des politiques économiques sur l'évolution de la pauvreté au Cameroun: une analyse en équilibre général micro-simulé avec double calibration," Working Papers MPIA 2008-18, PEP-MPIA.
    10. Stephen Tokarick, 2002. "Quantifying the Impact of Tradeon Wages; The Role of Nontraded Goods," IMF Working Papers 2002/191, International Monetary Fund.
    11. Thierfelder, Karen & Robinson, Sherman, 2002. "Trade and the skilled-unskilled wage gap in a model with differentiated goods," TMD discussion papers 96, International Food Policy Research Institute (IFPRI).
    12. Michael Pflüger, 2003. "Trade, Technology and Labour Markets: Empirical Controversies in the Light of the Jones Model," Discussion Papers of DIW Berlin 328, DIW Berlin, German Institute for Economic Research.
    13. Dirk Velde, 2001. "Foreign direct investment and factor prices in U.S. manufacturing," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 137(4), pages 622-643, December.
    14. John Whalley, 2000. "What Can The Developing Countries Infer Fromthe Uruguay Round Models For Future Negotiations," UNCTAD Blue Series Papers 4, United Nations Conference on Trade and Development.

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    JEL classification:

    • F00 - International Economics - - General - - - General
    • F1 - International Economics - - Trade

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