Working Paper: NBER ID: w30188
Authors: Rafael Dix-Carneiro; Sharon Traiberman
Abstract: We investigate the role of trade imbalances for the distributional consequences of globalization. We do so through the lens of a quantitative, general equilibrium, multi-country, multi-sector model of trade with four key ingredients: (a) workers with different levels of skills are organized into separate representative households; (b) endogenous trade imbalances arise from households' consumption and saving decisions; (c) production exhibits capital-skill complementarity; (d) labor market frictions across sectors and non-employment. We conduct a series of counterfactual experiments that illustrate the quantitative importance of both trade imbalances and capital-skill complementarity for the dynamics of the skill premium. We show that modelling trade imbalances can lead to stark differences between short- and long-run consequences of globalization shocks for the skill premium.
Keywords: Globalization; Trade Imbalances; Inequality
JEL Codes: F1; F16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Trade imbalances (F14) | skill premium (J24) |
| Households' consumption and saving decisions (E21) | Trade imbalances (F14) |
| Capital-skill complementarity (J24) | labor demand across sectors (J23) |
| Trade imbalances (F14) | production shift toward less tradable industries (O14) |
| Trade surpluses (F19) | production shift toward more tradable sectors (F16) |
| Labor reallocation across industries of varying skill intensities (J69) | skill premium (J24) |
| Shocks to the global environment (F69) | labor reallocation across industries of varying skill intensities (J69) |
| Capital-skill complementarity (J24) | long-term effects of globalization on inequality (F61) |
| Certain shocks (E32) | counterintuitive short-run declines in the skill premium (F66) |
| Short-run growth in China's skill premium (J24) | trade liberalization (F13) |
| Global trade liberalization (F13) | less than 1% growth in skill premium (J24) |