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Intraindustry trade and the skill premium: Theory and evidence

Elias Dinopoulos, Constantinos Syropoulos, Bin Xu and Yoto Yotov

Journal of International Economics, 2011, vol. 84, issue 1, 15-25

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.

Keywords: Monopolistic; competition; Non-homotheticity; Output; elasticity; of; substitution (search for similar items in EconPapers)
Date: 2011
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