Seminar 30 September, 2013

Trade Imbalances and Wage Inequality

Abstract

We study, both theoretically and empirically, how trade imbalances affect 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 evidence in support of these predictions using a large panel of countries and a panel of US manufacturing industries observed over the past three decades. Our results suggest that the large and growing North-South trade imbalances arisen over the last three decades may have exacerbated wage inequality worldwide.

Contact:
Battista Severgnini
Cédric Schneider