International Trade and Earnings Inequality: A New Factor Content Approach

Arnaud Costinot, Rodrigo Adao, Paul Carrillo, Dave Donaldson and Dina Pomeranz

No 15598, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We develop a new factor content approach to study the impact of trade on inequality. Our analysis generalizes the theoretical results of Deardorff and Staiger (1988) and improves on past empirical implementations of these results. Combined with unique administrative data from Ecuador, our approach yields measures of individual-level exposure to exports and imports, for both capital and labor income, as well as estimates of the incidence of such exposure across the income distribution. We find that international trade raises earnings inequality in Ecuador, especially in the upper-half of the income distribution. However, the drop in inequality experienced by Ecuador over the last decade would have been less pronounced in the absence of trade.

JEL-codes: F10 F11 F12 F14 F16 (search for similar items in EconPapers)
Date: 2020-12
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (14)

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Working Paper: International Trade and Earnings Inequality: A New Factor Content Approach (2020)
Working Paper: International Trade and Earnings Inequality: A New Factor Content Approach (2020)
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