The Choice of Structural Model in Trade-Wages Decompositions

Lisandro Abrego and John Whalley

No 7312, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper explores the use of structural models as an alternative to reduced form methods when decomposing observed joint trade and technology driven wage changes into components attributable to each source. Conventional mobile factors Heckscher-Ohlin models typically reveal problems of specialisation unless price changes accompanying trade shocks are small, and can also produce wide ranges for the decomposition for parameterisations consistent with the joint change. A differentiated goods model which generalises Heckscher-Ohlin removes problems of specialisation and concentrates the range of decompositions more narrowly, but introduces larger demand side responses to trade shocks which greatly reduce the effect of trade. The conclusion offered is that the choice of structural model matters for decomposing observed wage changes into trade and technology components, and that reduced-form methods which do not discriminate between alternative structural models may not be that informative for such decompositions.

JEL-codes: F00 F1 (search for similar items in EconPapers)
Date: 1999-08
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Published as Abrego, Lisandro & Whalley, John, 2000. "The Choice of Structural Model in Trade-Wages Decompositions," Review of International Economics, Blackwell Publishing, vol. 8(3), pages 462-77, August.

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