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The Choice of Structural Model in Trade-Wages Decompositions

  • Lisandro Abrego
  • John Whalley

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. Conventiona 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..

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Paper provided by Centre for the Study of Globalisation and Regionalisation (CSGR), University of Warwick in its series CSGR Working papers series with number 34/99.

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Date of creation: May 1999
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Handle: RePEc:wck:wckewp:34/99
Contact details of provider: Postal: Centre for the Study of Globalisation and Regionalisation (CSGR) University of Warwick Coventry CV4 7AL, U.K.
Phone: +44 (0) 1203 572 533
Fax: +44 (0) 1203 572 548
Web page: http://www.warwick.ac.uk/fac/soc/CSGR/Email:


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  1. Feenstra, Robert C & Hanson, Gordon H, 1996. "Globalization, Outsourcing, and Wage Inequality," American Economic Review, American Economic Association, vol. 86(2), pages 240-45, May.
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