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International Trade, Technology, and the Wage Gap: Evidence from Granger‐causality Tests

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  • Sucharita Ghosh
  • Steven Yamarik

Abstract

In this paper, we propose an alternative approach under which to examine the source of the increased wage gap between skilled and unskilled workers in US manufacturing. Rather than imposing the assumptions inherent in a given structural form, we posit a long‐run equilibrium relationship between international trade, technology, and the wage premium using a vector error‐correction model. We first test for the existence of a long‐run relationship using cointegration tests. If a cointegrating relationship is found, we then conduct tests on the direction of the long‐run relationship and of Granger causality. We apply our approach to each two‐digit and four‐digit SIC industry and find evidence in support of international trade being an important source of the wage gap. Our results suggest that it is premature to dismiss international trade as a possible suspect behind the rising wage premium.

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  • Sucharita Ghosh & Steven Yamarik, 2007. "International Trade, Technology, and the Wage Gap: Evidence from Granger‐causality Tests," Review of International Economics, Wiley Blackwell, vol. 15(2), pages 321-346, May.
    • Handle: RePEc:bla:reviec:v:15:y:2007:i:2:p:321-346
    DOI: 10.1111/j.1467-9396.2006.00618.x
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    1. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
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    Cited by:

    1. Ghosh, Sucharita & Enami, Ali, 2015. "Do refugee-immigrants affect international trade? Evidence from the world's largest refugee case," Journal of Policy Modeling, Elsevier, vol. 37(2), pages 291-307.
    2. Gonzaga, Gustavo & Terra, Cristina & Muriel Hernandez, Beatriz, 2014. "Wage Differentials: Trade Openness and Wage Bargaining," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 34(1), March.

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