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Trade Policy and Factor Prices: An Empirical Strategy

Author

Listed:
  • Daniel Ortega

    (Center for Finance, Instituto de Estudios Superiores de Administración)

  • Francisco Rodríguez

    (Economics Department, Wesleyan University)

Abstract

This paper presents a new empirical strategy for estimating the effects of trade policy on domestic factor prices when policy endogeneity is suspected. Absent income effectson factor supplies or domestic prices, the coefficient on the terms of trade can provide an unbiased estimator of the effect of trade barriers on the factor distribution of income for a small economy. In the more general case where income effects are allowed for, we provide a means to quantify and control for the possible bias. We implement our strategy on a cross-national data set of trade policies and income shares of capital and labor. We find little evidence of the existence of Stolper-Samuelson effects, both for the sample as a whole as well as within cones of diversification. Consistent with a model of wage bargaining, we find that the effect of openness on capital shares is greater for countries with higher unionization rates.

Suggested Citation

  • Daniel Ortega & Francisco Rodríguez, 2005. "Trade Policy and Factor Prices: An Empirical Strategy," Wesleyan Economics Working Papers 2005-004, Wesleyan University, Department of Economics.
  • Handle: RePEc:wes:weswpa:2005-004
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    File URL: http://repec.wesleyan.edu/pdf/frrodriguez/2005004_rodriguez.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Factor prices; trade policy; Stolper-Samuelson theorem; wage bargaining;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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