Working Paper: CEPR ID: DP9900
Authors: Rosario Crin; Paolo Epifani
Abstract: We study, both theoretically and empirically, how trade imbalances affect the structure of countries' exports and wage inequality. We show that, in a Heckscher-Ohlin model with a continuum of goods, a Southern (Northern) trade surplus leads to an increase (reduction) in the average skill intensity of exports, in the relative demand for skills and in the skill premium in both countries. We provide robust support for the mechanism underlying these predictions using a large panel of countries observed over the past 30 years. Our results suggest that the large and growing North-South trade imbalances arisen over the last three decades may have exacerbated wage inequality worldwide.
Keywords: average skill intensity of exports; north-south trade imbalances; skill premia
JEL Codes: F1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trade imbalances (F14) | influence relative demand for skills (J24) |
| trade imbalances (F14) | influence wage inequality (J31) |
| Southern-Northern trade surplus (F14) | increase in average skill intensity of exports (J24) |
| Southern-Northern trade surplus (F14) | increase in relative demand for skills (J24) |
| Southern-Northern trade surplus (F14) | increase in skill premium (J24) |
| Northern trade surplus (F19) | decrease in average skill intensity of exports (F66) |
| Northern trade surplus (F19) | decrease in relative demand for skills (J29) |
| Northern trade surplus (F19) | decrease in skill premium (F66) |