Working Paper: NBER ID: w23737
Authors: Simon Galle; Andrés Rodríguez-Clare; Moises Yi
Abstract: We develop a multi-sector gravity model with heterogeneous workers to quantify the aggregate and group-level welfare effects of trade. We estimate the model using the structural relationship between China-shock driven changes in manufacturing employment and average earnings across US groups defined by commuting zone and education. We find that the China shock increases average welfare but some groups experience losses as high as five times the average gain. Adjusted for plausible measures of inequality aversion, gains in social welfare are positive and only slightly lower than with the standard aggregation.
Keywords: Trade; Welfare Effects; China Shock; Gravity Model
JEL Codes: F1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| China shock (F69) | average welfare (I30) |
| China shock (F69) | income for groups with high employment shares in sectors with strong import competition (J39) |
| average welfare (I30) | distributional effects across different groups (D39) |
| average welfare (I30) | inequality-adjusted gains from trade (F11) |
| China shock (F69) | spatial correlation of welfare losses (R12) |