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Trade, Wages, and Productivity

Author

Listed:
  • Behrens, Kristian

    (University of Québec at Montréal)

  • Mion, Giordano

    (University of Sussex)

  • Murata, Yasusada

    (Nihon University)

  • Suedekum, Jens

    (Heinrich Heine University Düsseldorf)

Abstract
We develop a new general equilibrium model of trade with heterogeneous firms, variable demand elasticities and endogenously determined wages. Trade integration favors wage convergence, intensifies competition, and forces the least efficient firms to leave the market, thereby affecting aggregate productivity. Since wage and productivity responses are endogenous, our model is well suited to study the impacts of trade integration on aggregate productivity and factor prices. Using Canada-U.S. interregional trade data, we first estimate a system of theory-based gravity equations under the general equilibrium constraints generated by the model. Doing so allows us to measure 'border effects' and to decompose them into a 'pure' border effect, relative and absolute wage effects, and a selection effect. Using the estimated parameter values, we then quantify the impacts of removing the Canada-U.S. border on wages, productivity, markups, the share of exporters, the mass of varieties produced and consumed, and welfare. We finally provide a similar quantification with respect to regional population changes.

Suggested Citation

  • Behrens, Kristian & Mion, Giordano & Murata, Yasusada & Suedekum, Jens, 2008. "Trade, Wages, and Productivity," IZA Discussion Papers 3682, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp3682
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    Other versions of this item:

    • Kristian Behrens & Giordano Mion & Yasusada Murata & Jens Südekum, 2014. "Trade, Wages, And Productivity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55(4), pages 1305-1348, November.

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    general equilibrium; variable demand elasticities; heterogeneous firms; gravity equations; monopolistic competition;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

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