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The skill bias of world trade

Under plausible assumptions about preferences and technology, the model in this paper suggests that the entire volume of world trade matters for wage inequality. Therefore, trade integration, even among identical countries, is likely to increase the skill premium. Further, we argue that empirical evidence of a falling relative price of skill-intensive goods can be reconciled with the fast growth of world trade and that the intersectoral mobility of capital exacerbates the effect of trade on inequality. We provide new empirical evidence in support of our results and a quantitative assessment of the skill bias of world trade.

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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 833.

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Date of creation: Nov 2004
Date of revision: Mar 2007
Handle: RePEc:upf:upfgen:833
Contact details of provider: Web page: http://www.econ.upf.edu/

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