Trade, Wages, and Productivity

Kristian Behrens (), Giordano Mion, Yasusada Murata and Jens Suedekum

No 3682, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We develop a new general equilibrium model of trade with heterogeneous firms, variable demand elasticities and endogenously determined wages. Trade integration favors wage convergence, intensifies competition, and forces the least efficient firms to leave the market, thereby affecting aggregate productivity. Since wage and productivity responses are endogenous, our model is well suited to study the impacts of trade integration on aggregate productivity and factor prices. Using Canada-U.S. interregional trade data, we first estimate a system of theory-based gravity equations under the general equilibrium constraints generated by the model. Doing so allows us to measure 'border effects' and to decompose them into a 'pure' border effect, relative and absolute wage effects, and a selection effect. Using the estimated parameter values, we then quantify the impacts of removing the Canada-U.S. border on wages, productivity, markups, the share of exporters, the mass of varieties produced and consumed, and welfare. We finally provide a similar quantification with respect to regional population changes.

Keywords: general equilibrium; variable demand elasticities; heterogeneous firms; gravity equations; monopolistic competition (search for similar items in EconPapers)
JEL-codes: F12 F15 F17 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2008-09
New Economics Papers: this item is included in nep-bec, nep-int and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Published - substantially revised version published in: International Economic Review, 2014, 55 (4), 1305-1348. [Final version]

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Related works:
Journal Article: TRADE, WAGES, AND PRODUCTIVITY (2014)
Working Paper: Trade, Wages, and Productivity (2012)
Working Paper: Trade, Wages and Productivity (2009)
Working Paper: Trade, Wages and Productivity (2009)
Working Paper: Trade, wages, and productivity (2009)
Working Paper: Trade, wages and productivity (2009)
Working Paper: Trade, wages and productivity (2009)
Working Paper: Trade, Wages, and Productivity (2008)
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