Globalization, Trade Imbalances and Labor Market Adjustment

Rafael Dix-Carneiro, João Paulo Pessoa, Ricardo Reyes-Heroles and Sharon Traiberman

No 28315, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We argue that modeling trade imbalances is crucial to understanding transitional dynamics in response to globalization shocks. We build and estimate a general equilibrium, multi-country, multi-sector model of trade with two key ingredients: (a) endogenous trade imbalances arising from households' consumption and saving decisions; (b) labor market frictions across and within sectors. We use our model to perform several empirical exercises. We find that the “China shock” accounted for 25% of the decline in US manufacturing between 2000 and 2014—twice the magnitude predicted from a model imposing balanced trade. A concurrent rise in US service employment led to a negligible aggregate unemployment response. We then benchmark our model's predictions for the gains from trade against the popular “ACR” sufficient statistics approach. We find that our predictions for the long-run gains from trade and consumption dynamics significantly diverge.

JEL-codes: F1 F16 (search for similar items in EconPapers)
Date: 2021-01
New Economics Papers: this item is included in nep-dge, nep-int, nep-lab and nep-opm
Note: IFM ITI LS
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Citations: View citations in EconPapers (7)

Published as Rafael Dix-Carneiro & João Paulo Pessoa & Ricardo Reyes-Heroles & Sharon Traiberman, 2023. "Globalization, Trade Imbalances, and Labor Market Adjustment," The Quarterly Journal of Economics, vol 138(2), pages 1109-1171.

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Related works:
Journal Article: Globalization, Trade Imbalances, and Labor Market Adjustment (2023)
Working Paper: Globalization, trade imbalances and labor market adjustment (2021)
Working Paper: Globalization, trade imbalances and labor market adjustment (2021)
Working Paper: Globalization, Trade Imbalances and Labor Market Adjustment (2021)
Working Paper: Globalization, Trade Imbalances, and Labor Market Adjustment (2021)
Working Paper: Globalization, Trade Imbalances, and Labor Market Adjustment (2018)
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