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Intraindustry trade and the skill premium: Theory and evidence

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  • Dinopoulos, Elias
  • Syropoulos, Constantinos
  • Xu, Bin
  • Yotov, Yoto V.

Abstract

We explore theoretically and empirically the relationship between intraindustry trade and the skill premium. Our model features a Chamberlinian-type mechanism of income distribution based on quasi-homothetic consumer preferences, non-homothetic production, and factor-biased scale economies at the firm level. The analysis focuses on a two-country, one-sector model of intraindustry trade with two factor inputs consisting of high-skilled and low-skilled labor. We find that a move from autarky to free trade (a) raises the output of the representative firm and its level of total factor productivity, and (b) reduces (raises) the relative wage of high-skilled workers under the hypothesis of output-skill substitutability (output-skill complementarity). Plant-level evidence from Mexico supports the empirical relevance of the proposed income-distribution mechanism.

Suggested Citation

  • Dinopoulos, Elias & Syropoulos, Constantinos & Xu, Bin & Yotov, Yoto V., 2011. "Intraindustry trade and the skill premium: Theory and evidence," Journal of International Economics, Elsevier, vol. 84(1), pages 15-25, May.
    • Handle: RePEc:eee:inecon:v:84:y:2011:i:1:p:15-25
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    Cited by:

    1. Harris, Richard G. & Robertson, Peter E., 2013. "Trade, wages and skill accumulation in the emerging giants," Journal of International Economics, Elsevier, vol. 89(2), pages 407-421.
    2. Dinopoulos, Elias & Kalyvitis, Sarantis & Katsimi, Margarita, 2020. "Variable export price elasticity, product quality, and credit constraints: Theory and evidence from Greek firms," Journal of International Money and Finance, Elsevier, vol. 104(C).
    3. Rashmi Ahuja & Sugata Marjit, 2022. "Liberalizing Trade and Capital Flows and the Wage Gap: Does Sequencing Matter?," Open Economies Review, Springer, vol. 33(2), pages 375-389, April.
    4. Francesco Di Comite & Antonella Nocco & Gianluca Orefice, 2018. "Trade liberalization and the wage gap: the role of vertical linkages and fixed costs," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 154(1), pages 75-115, February.
    5. Feng, Xiaohua, 2018. "Effect of intra-industry trade on skill premium in manufacturing in China," China Economic Review, Elsevier, vol. 47(C), pages 206-218.
    6. André Varella Mollick & Jorge Ibarra-Salazar, 2013. "Productivity Effects on the Wage Premium of Mexican Maquiladoras," Economic Development Quarterly, , vol. 27(3), pages 208-220, August.
    7. Subhayu Bandyopadhyay & Elias Dinopoulos & Bulent Unel, 2018. "Effects of Credit Supply on Unemployment and Income Inequality," Review, Federal Reserve Bank of St. Louis, vol. 100(4), pages 345-362.
    8. Chun-Fang Chiang & Jin-Tan Liu & Tsai-Wei Wen, 2013. "Individual Preferences for Trade Partners in Taiwan," Economics and Politics, Wiley Blackwell, vol. 25(1), pages 91-109, March.
    9. Sang-Chul Yoon, 2011. "Technology Adoption and Skill Premium in the Knowledge Economy," Korean Economic Review, Korean Economic Association, vol. 27, pages 231-251.
    10. Cho, Sang-Wook (Stanley) & Díaz, Julián P., 2013. "Trade integration and the skill premium: Evidence from a transition economy," Journal of Comparative Economics, Elsevier, vol. 41(2), pages 601-620.
    11. Anwar, Sajid & Sun, Sizhong & Valadkhani, Abbas, 2013. "International outsourcing of skill intensive tasks and wage inequality," Economic Modelling, Elsevier, vol. 31(C), pages 590-597.
    12. Xu, Yun & Ouyang, Alice Y., 2017. "Tariffs, relative prices and wage inequality: Evidence from China," China Economic Review, Elsevier, vol. 46(C), pages 97-109.
    13. Paolo Epifani & Rosario Crinò, 2013. "Trade Imbalances and Wage Inequality," 2013 Meeting Papers 383, Society for Economic Dynamics.

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