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Trade, Firms, and Wages: Theory and Evidence

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Author Info
Amiti, Mary
Davis, Donald R

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Abstract

How does trade liberalization affect wages? This is the first paper to consider in theory and data how the impact of final and intermediate input tariff cuts on workers’ wages varies with the global engagement of their firm. Our model predicts that a fall in output tariffs lowers wages at import-competing firms, but boosts wages at exporting firms. Similarly, a fall in input tariffs raises wages at import-using firms relative to those at firms that only source locally. Using highly detailed Indonesian manufacturing census data for the period 1991 to 2000, we find considerable support for the model’s predictions.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6872.

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Date of creation: Jun 2008
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Handle: RePEc:cpr:ceprdp:6872

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Related research
Keywords: firm heterogeneity input tariffs output tariffs trade liberalization wages

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Find related papers by JEL classification:
F10 - International Economics - - Trade - - - General
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
F14 - International Economics - - Trade - - - Country and Industry Studies of Trade

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References listed on IDEAS
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  1. Eric A. Verhoogen, 2008. "Trade, Quality Upgrading, and Wage Inequality in the Mexican Manufacturing Sector," The Quarterly Journal of Economics, MIT Press, vol. 123(2), pages 489-530, 05. [Downloadable!] (restricted)
    Other versions:
  2. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2007. "Firms in International Trade," NBER Working Papers 13054, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Jonathan Eaton & Samuel Kortum, 2004. "An Anatomy of International Trade: Evidence from French Firms," 2004 Meeting Papers 802, Society for Economic Dynamics. [Downloadable!]
    Other versions:
  4. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 543-69, November. [Downloadable!] (restricted)
  5. Revenga, Ana, 1997. "Employment and Wage Effects of Trade Liberalization: The Case of Mexican Manufacturing," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages S20-43, July. [Downloadable!] (restricted)
  6. Felbermayr, Gabriel & Prat, Julien & Schmerer, Hans-Jörg, 2008. "Globalization and Labor Market Outcomes: Wage Bargaining, Search Frictions, and Firm Heterogeneity," IZA Discussion Papers 3363, Institute for the Study of Labor (IZA). [Downloadable!]
  7. Hartmut Egger & Udo Kreickemeier, 2007. "Firm Heterogeneity and the Labour Market Effects of Trade Liberalisation," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  8. Donald R. Davis & James Harrigan, 2007. "Good Jobs, Bad Jobs, and Trade Liberalization," NBER Working Papers 13139, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Daniel Trefler, 2004. "The Long and Short of the Canada-U. S. Free Trade Agreement," American Economic Review, American Economic Association, vol. 94(4), pages 870-895, September. [Downloadable!]
    Other versions:
  10. Mahmood Arai, 2003. "Wages, Profits, and Capital Intensity: Evidence from Matched Worker-Firm Data," Journal of Labor Economics, University of Chicago Press, vol. 21(3), pages 593-618, July. [Downloadable!]
    Other versions:
  11. Nina Pavcnik & Andreas Blom & Pinelopi Goldberg & Norbert Schady, 2004. "Trade Liberalization and Industry Wage Structure: Evidence from Brazil," World Bank Economic Review, Oxford University Press, vol. 18(3), pages 319-344.
  12. Eric A. Verhoogen & Stephen V. Burks & Jeffrey P. Carpenter, 2007. "Fairness and Freight-Handlers: Local Labor-Market Conditions and Wage-Fairness Perceptions in a Trucking Firm," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 60(4), pages 477-498, July.
    Other versions:
  13. Pinelopi Koujianou Goldberg & Nina Pavcnik, 2007. "Distributional Effects of Globalization in Developing Countries," Journal of Economic Literature, American Economic Association, vol. 45(1), pages 39-82, March.
  14. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard, 1986. "Fairness as a Constraint on Profit Seeking: Entitlements in the Market," American Economic Review, American Economic Association, vol. 76(4), pages 728-41, September. [Downloadable!] (restricted)
  15. Levine, David I, 1993. "Fairness, Markets, and Ability to Pay: Evidence from Compensation Executives," American Economic Review, American Economic Association, vol. 83(5), pages 1241-59, December. [Downloadable!] (restricted)
  16. Hiroyuki Kasahara & Beverly Lapham, 2008. "Productivity and the Decision to Import and Export: Theory and Evidence," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
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