Intraindustry trade and the skill premium: Theory and evidence

Elias Dinopoulos (First Author), Bin Xu (Participant Author), Yoto V. Yotov (Participant Author), Constantinos Syropoulos (Participant Author)

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Abstract

We explore theoretically and empirically the relationship between intraindustry trade and the skill premium. Our model features a Chamberlinian-type mechanism of income distribution based on quasi-homothetic consumer preferences, non-homothetic production, and factor-biased scale economies at the firm level. The analysis focuses on a two-country, one-sector model of intraindustry trade with two factor inputs consisting of high-skilled and low-skilled labor. We find that a move from autarky to free trade (a) raises the output of the representative firm and its level of total factor productivity, and (b) reduces (raises) the relative wage of high-skilled workers under the hypothesis of output-skill substitutability (output-skill complementarity). Plant-level evidence from Mexico supports the empirical relevance of the proposed income-distribution mechanism.
Original languageEnglish
Pages (from-to)15-25
JournalJournal of International Economics
Volume84
Issue number1
DOIs
Publication statusPublished - 2011

Corresponding author email

elias.dinopoulos@warrington.ufl.edu

Keywords

  • Monopolistic competition
  • Non-homotheticity
  • Output elasticity of substitution
  • WAGE INEQUALITY; RELATIVE WAGES; INCREASING RETURNS; PRODUCTIVITY; MEXICO; US; COMPETITION; TECHNOLOGY; PROTECTION; PRICES

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Dinopoulos, E., Xu, B., Yotov, Y. V., & Syropoulos, C. (2011). Intraindustry trade and the skill premium: Theory and evidence. Journal of International Economics, 84(1), 15-25. https://doi.org/10.1016/j.jinteco.2011.01.003