Trade between symmetric countries, heterogeneous firms, and the skill premium

Gonzague Vannoorenberghe

Canadian Journal of Economics, 2011, vol. 44, issue 1, 148-170

Abstract: This paper examines the effects of trade liberalization between symmetric countries on the skill premium. I introduce skilled and unskilled labour in a model of trade with heterogeneous firms à la Melitz (2003) and assume a production technology such that more productive firms are more skill intensive. I show that the effects of trade liberalization on wage inequality crucially depend on the type of trade costs considered and on their initial size. While fixed costs of trade have a potentially non-monotonic effect on the skill premium, a drop in variable trade costs unambiguously and substantially raises wage inequality.

JEL-codes: F12 F16 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (23)

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