Capital-Skill Complementarity and the Skill Premium in a Quantitative Model of Trade

Parro, Fernando

doi:10.1257/mac.5.2.72

Cited by 120 publications

(122 citation statements)

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“…This issue is explored quantitatively in Vogel (2011) andParro (2012). 23 We have explored the sensitivity of our results to the assumption of Cobb-Douglas technologies for the United States.…”

Section: Multiple Factors Of Productionmentioning

confidence: 99%

Trade Theory with Numbers: Quantifying the Consequences of Globalization

Costinot

Rodrı́guez-Clare

2014

Handbook of International Economics

466

247

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We review a recent body of theoretical work that aims to put numbers on the consequences of globalization. A unifying theme of our survey is methodological. We rely on gravity models and demonstrate how they can be used for counterfactual analysis. We highlight how various economic considerations-market structure, firm-level heterogeneity, multiple sectors, intermediate goods, and multiple factors of production-affect the magnitude of the gains from trade liberalization. We conclude by discussing a number of outstanding issues in the literature as well as alternative approaches for quantifying the consequences of globalization.

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Section: Multiple Factors Of Productionmentioning

confidence: 99%

Trade Theory with Numbers: Quantifying the Consequences of Globalization

Costinot

Rodrı́guez-Clare

2014

Handbook of International Economics

466

247

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“…For example, Hsieh and Ossa (2011) study the spillover e¤ects of China's growth on other countries; di Giovanni, Levchenko, and Zhang (2014) study the global welfare impact of China's trade integration and technological change; Levchenko and Zhang (2013) investigate the impact of trade with emerging countries on labour markets; Burstein and Vogel (2012) and Parro (2013) study the e¤ect of international trade on the skill premium; Caliendo, Rossi-Hansberg, Parro, and Sarte (2013) study the impact of regional productivity changes on the U.S. economy, and so on. None of these applications, however, focuses on the impact of openness to trade on volatility.…”

Section: Introductionmentioning

confidence: 99%

Diversification through Trade

Caselli

Koren

Lisicky

et al. 2015

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A widely held view is that openness to international trade leads to higher GDP volatility, as trade increases specialization and hence exposure to sector-specific shocks. We revisit the common wisdom and argue that when country-wide shocks are important, openness to international trade can lower GDP volatility by reducing exposure to domestic shocks and allowing countries to diversify the sources of demand and supply across countries. Using a quantitative model of trade, we assess the importance of the two mechanisms (sectoral specialization and cross-country diversification) and provide a new answer to the question of whether and how international trade affects economic volatility. Francesco Caselli Department of Economics London School of Economics I IntroductionAn important question at the crossroads of macro-development and international economics is whether and how openness to trade a¤ects macroeconomic volatility. A widely held view in academic and policy discussions, which can be traced back at least to Newbery and Stiglitz (1984), is that openness to international trade leads to higher GDP volatility. The origins of this view are rooted in a large class of theories of international trade predicting that openness to trade increases specialization. Because specialization (or lack of diversi…cation) in production tends to increase a country's exposure to shocks speci…c to the sectors (or range of products) in which the country specializes, it is generally inferred that trade increases volatility. This view seems present in policy circles, where trade openness is often perceived as posing a trade-o¤ between the …rst and second moments (i.e., trade causes higher productivity at the cost of higher volatility). 1This paper revisits the common wisdom on two conceptual grounds. First, the paper points out that the existing wisdom is strongly predicated on the assumption that sectorspeci…c shocks (hitting a particular sector) are the dominant source of GDP volatility. The evidence, however does not support this assumption. Indeed, country-speci…c shocks (shocks common to all sectors in a given country) are at least as important as sector-speci…c shocks in shaping countries'volatility patterns (e.g. Koren and Tenreyro, 2007). The …rst contribution of this paper is to show analytically that when country-speci…c shocks are an important source of volatility, openness to international trade can lower GDP volatility. In particular, openness reduces a country's exposure to domestic shocks, and allows it to diversify its 1 See for example the report on "Economic openness and economic prosperity: trade and investment analytical paper" (2011), prepared by the U.K. Department of International Development.2 sources of demand and supply, leading to potentially lower overall volatility. This is true as long as the volatility of shocks a¤ecting trading partners are not too big, or the covariance of shocks across countries is not too large. In other words, we show that the sign and size of the e¤ect of openness on volati...

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“…The greater tendency to offshore routine tasks is hypothesized to increase wage inequality. Parro (2013) Our approach is also related to recent empirical papers motivated by these same theoretical developments (see Ekholm and Midelfart 2005;Ebenstein et al 2009;Kemeny and Rigby 2012) and that in various ways seek to explore how the geographical fragmentation of production stages and tasks has affected the demand for workers of various types. Like all these papers, we regress the relative wages of skilled to unskilled workers within an industry on a sector-specific measure of low-wage country import competition and a measure of technological change, with other industry characteristics as controls.…”

Section: Introductionmentioning

confidence: 99%

US Wage Inequality and Low‐Wage Import Competition

Rigby

Kemeny

Cooke

2014

Tijd voor Econ & Soc Geog

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This article examines the impact of import competition from low-wage countries (LWCs) on wages and wage inequality in the U.S. over the period . During the 1990s, studies appeared to settle this issue, finding that technology, not trade, accounted for the bulk of rising inequality. This paper revisits the link between trade and wages, motivated by two changes in the structure of trade. First, trade today is shaped as much by the exchange of components and tasks as finished goods. Second, import volumes from LWCs into advanced economies like the U.S. have risen dramatically since the early 1990s. The paper pays special attention to the timing of trade impacts. Consistent with prior work, it shows that technological change is the primary driver of inequality before 1990. However, after 1990 wage inequality growth is chiefly a function of rising import competition from low-wage economies. To account for the growing fragmentation of production within economic sectors, we explore trade impacts using a panel model where the focus in on within-rather than between-industry shifts in inequality. Lags of key variables are used as instruments, and our results appear robust to broad concerns with endogeneity and to different measures of skill-biased technological change. 3 U.S. Wage Inequality and Low-Wage Import Competition

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Capital-Skill Complementarity and the Skill Premium in a Quantitative Model of Trade

Cited by 120 publications

References 50 publications

Trade Theory with Numbers: Quantifying the Consequences of Globalization

Trade Theory with Numbers: Quantifying the Consequences of Globalization

Diversification through Trade

US Wage Inequality and Low‐Wage Import Competition

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