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Tariff reductions, trade patterns and the wage gap

Francesco Di Comite, Antonella Nocco () and Gianluca Orefi Ce ()
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Antonella Nocco: University of Salento, Department of Management, Economics, Mathematics and Statistics, Ecotekne
Gianluca Orefi Ce: CEPII

Authors registered in the RePEc Author Service: Gianluca Orefice ()

No 2015004, LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: This paper studies the impact of trade liberalization on labor market outcomes. First, we find that bilateral trade liberalization does not affect exports towards third countries. To accommodate this novel result, we deviate from existing literature and rely on a three-country monopolistic competition framework with variable elasticity of substitution and vertical linkages in fixed costs. The resulting model predicts that trade liberalization is associated with an increase in the skill-driven wage gap and a reduction in unskilled employment. This prediction is empirically validated using EU-KLEMS data on country-sector wage by skill level on 17 OECD countries from 1996 to 2005.

Keywords: PTAs; Vertical linkages; Trade diversion; Trade creation; Wage gap (search for similar items in EconPapers)
JEL-codes: F12 F16 J31 (search for similar items in EconPapers)
Pages: 48
Date: 2015-02-11
New Economics Papers: this item is included in nep-int, nep-lma and nep-mfd
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