IDEAS home Printed from https://ideas.repec.org/p/osf/socarx/bme6k_v1.html
   My bibliography  Save this paper

Trade and Real Wages of the Rich and Poor: Cross-Region Evidence

Author

Listed:
  • He, Zheli

Abstract

Trade liberalization affects real-wage inequality through two channels: the distribution of nominal wages across workers and, if the rich and the poor consume different bundles of goods, the distribution of price indices across consumers. I provide a unified framework incorporating both channels by allowing for non-homothetic preferences and worker heterogeneity across jobs. Because skill-intensive goods are also high-income elastic in the data, I find an intuitive, previously unexplored, and strong interaction between the two channels. I parametrize the model for 40 regions using sector-level trade and production data, and find that trade cost reductions decrease the relative nominal wage of the poor and the relative price index for the poor in all regions. On net, real-wage inequality falls everywhere.

Suggested Citation

  • He, Zheli, 2018. "Trade and Real Wages of the Rich and Poor: Cross-Region Evidence," SocArXiv bme6k_v1, Center for Open Science.
    • Handle: RePEc:osf:socarx:bme6k_v1
    DOI: 10.31219/osf.io/bme6k_v1
    as

    Download full text from publisher

    File URL: https://osf.io/download/5a8ce230da91d4000fad253c/
    Download Restriction: no
    File URL: https://libkey.io/10.31219/osf.io/bme6k_v1?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Novy, Dennis, 2013. "International trade without CES: Estimating translog gravity," Journal of International Economics, Elsevier, vol. 89(2), pages 271-282.
    2. Amit Khandelwal, 2010. "The Long and Short (of) Quality Ladders," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(4), pages 1450-1476.
    3. Andrew Atkeson & Ariel Burstein, 2008. "Pricing-to-Market, Trade Costs, and International Relative Prices," American Economic Review, American Economic Association, vol. 98(5), pages 1998-2031, December.
    4. Daron Acemoglu & David Autor & David Dorn & Gordon H. Hanson & Brendan Price, 2016. "Import Competition and the Great US Employment Sag of the 2000s," Journal of Labor Economics, University of Chicago Press, vol. 34(S1), pages 141-198.
    5. Marcel P. Timmer & Erik Dietzenbacher & Bart Los & Robert Stehrer & Gaaitzen J. Vries, 2015. "An Illustrated User Guide to the World Input–Output Database: the Case of Global Automotive Production," Review of International Economics, Wiley Blackwell, vol. 23(3), pages 575-605, August.
    6. Eric A. Verhoogen, 2008. "Trade, Quality Upgrading, and Wage Inequality in the Mexican Manufacturing Sector," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(2), pages 489-530.
    7. Benjamin Faber & Thibault Fally, 2022. "Firm Heterogeneity in Consumption Baskets: Evidence from Home and Store Scanner Data," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 89(3), pages 1420-1459.
    8. Paula Bustos, 2011. "Trade Liberalization, Exports, and Technology Upgrading: Evidence on the Impact of MERCOSUR on Argentinian Firms," American Economic Review, American Economic Association, vol. 101(1), pages 304-340, February.
    9. Justin Caron & Thibault Fally & James R. Markusen, 2021. "International Trade Puzzles: A Solution Linking Production And Preferences," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 11, pages 199-250, World Scientific Publishing Co. Pte. Ltd..
    10. David H. Autor & David Dorn & Gordon H. Hanson & Jae Song, 2014. "Trade Adjustment: Worker-Level Evidence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(4), pages 1799-1860.
    11. Pablo D. Fajgelbaum & Amit K. Khandelwal, 2016. "Measuring the Unequal Gains from Trade," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(3), pages 1113-1180.
    12. Robert C. Feenstra & John Romalis, 2014. "International Prices and Endogenous Quality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(2), pages 477-527.
    13. Arnaud Costinot & Dave Donaldson & Cory Smith, 2016. "Evolving Comparative Advantage and the Impact of Climate Change in Agricultural Markets: Evidence from 1.7 Million Fields around the World," Journal of Political Economy, University of Chicago Press, vol. 124(1), pages 205-248.
    14. Alvarez, Fernando & Lucas, Robert Jr., 2007. "General equilibrium analysis of the Eaton-Kortum model of international trade," Journal of Monetary Economics, Elsevier, vol. 54(6), pages 1726-1768, September.
    15. Arnaud Costinot & Jonathan Vogel, 2015. "Beyond Ricardo: Assignment Models in International Trade," Annual Review of Economics, Annual Reviews, vol. 7(1), pages 31-62, August.
    16. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January.
    17. Ariel Burstein & Eduardo Morales & Jonathan Vogel, 2015. "Accounting for Changes in Between-Group Inequality," NBER Working Papers 20855, National Bureau of Economic Research, Inc.
    18. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
    19. Yeaple, Stephen Ross, 2005. "A simple model of firm heterogeneity, international trade, and wages," Journal of International Economics, Elsevier, vol. 65(1), pages 1-20, January.
    20. Rafael Dix-Carneiro & Brian K. Kovak, 2015. "Trade Liberalization and the Skill Premium: A Local Labor Markets Approach," American Economic Review, American Economic Association, vol. 105(5), pages 551-557, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. He, Zheli, 2018. "Trade and Real Wages of the Rich and Poor: Cross-Region Evidence," SocArXiv bme6k, Center for Open Science.
    2. Justin Caron & Thibault Fally & James Markusen, 2021. "Per capita income and the demand for skills," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 12, pages 251-268, World Scientific Publishing Co. Pte. Ltd..
    3. Flach, Lisandra & Unger, Florian, 2022. "Quality and gravity in international trade," Journal of International Economics, Elsevier, vol. 137(C).
    4. Muendler, Marc-Andreas, 2017. "Trade, technology, and prosperity: An account of evidence from a labor-market perspective," WTO Staff Working Papers ERSD-2017-15, World Trade Organization (WTO), Economic Research and Statistics Division.
    5. Jonathan I. Dingel, 2017. "The Determinants of Quality Specialization," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(4), pages 1551-1582.
    6. Irene Brambilla & Nicolas Depetris Chauvin & Guido Porto, 2015. "Wage and Employment Gains from Exports: Evidence from Developing Countries," Working Papers 2015-28, CEPII research center.
    7. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2018. "Global Firms," Journal of Economic Literature, American Economic Association, vol. 56(2), pages 565-619, June.
    8. Dorothee Hillrichs & Gonzague Vannoorenberghe, 2021. "Recovering Within-Country Inequality From Trade Data," LIDAM Discussion Papers IRES 2021014, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    9. Alcalá, Francisco, 2016. "Specialization across goods and export quality," Journal of International Economics, Elsevier, vol. 98(C), pages 216-232.
    10. Andrea Ciani, 2021. "Income inequality and the quality of imports," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 157(2), pages 375-416, May.
    11. Xavier Jaravel & Erick Sager, 2018. "What are the Price Effects of Trade? Evidence from the U.S. and Implications for Quantitative Trade Models," Economic Working Papers 506, Bureau of Labor Statistics.
    12. Melitz, Marc J. & Redding, Stephen J., 2014. "Heterogeneous Firms and Trade," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 1-54, Elsevier.
    13. Chen, Natalie & Juvenal, Luciana, 2022. "Markups, quality, and trade costs," Journal of International Economics, Elsevier, vol. 137(C).
    14. Rodrigo Adao & Arnaud Costinot & Dave Donaldson, 2017. "Nonparametric Counterfactual Predictions in Neoclassical Models of International Trade," American Economic Review, American Economic Association, vol. 107(3), pages 633-689, March.
    15. Dorothee Hillrichs, 2023. "The global geography of income and export patterns," LIDAM Discussion Papers IRES 2023001, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    16. Campbell, Jason, 2024. "The link between import sources and export success: Evidence from China," International Economics, Elsevier, vol. 178(C).
    17. Hillrichs, Dorothee & Vannoorenberghe, Gonzague, 2022. "Trade costs, home bias and the unequal gains from trade," Journal of International Economics, Elsevier, vol. 139(C).
    18. Lashkaripour, Ahmad, 2020. "Discrete trade," Journal of International Economics, Elsevier, vol. 126(C).
    19. Jaravel, Xavier & Sager, Erick, 2019. "What are the price effects of trade? Evidence from the US for quantitative trade models," LSE Research Online Documents on Economics 103402, London School of Economics and Political Science, LSE Library.
    20. Ana P. Fernandes & Heiwai Tang, 2020. "Fast Fashion: Theory and Evidence from Portuguese Textile and Clothing Firms," CESifo Working Paper Series 8125, CESifo.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:osf:socarx:bme6k_v1. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: OSF (email available below). General contact details of provider: https://arabixiv.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.