From wages to wealth: How trade policy reallocates across the life cycle

Jake Bradley and Junggie Lee

No 2025/02, Discussion Papers from University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM)

Abstract: This paper studies the heterogeneous distributional effects of trade liberalization. We develop a tractable heterogeneous agent general equilibrium model in which individuals differ by income, wealth, age, and employment status, while firms endogenously evolve in productivity following a stochastic process with fixed export costs. In the model, trade openness raises the return to labor and deepens the capital stock, lowering returns on assets. These shifts generate systematic differences in preferences over trade: workers whose income relies primarily on labor gain from openness, while retirees and asset-dependent households may lose. Using microdata from the Brexit referendum in the United Kingdom, we document empirical patterns consistent with the model’s predictions: individuals with higher labor income shares were significantly less likely to support leaving the European Union. By linking micro-level heterogeneity to macro-level trade outcomes, the model offers a useful tool for evaluating the political economy and welfare consequences of globalization.

Keywords: Trade gains; Heterogeneous agent; Perpetual youth; Life-cycle (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:not:notcfc:2025/02

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