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Title:Trade, wages, and productivity PDF Logo
Authors:Behrens, Kristian
Mion, Giordano
Murata, Yasusada
Südekum, Jens
Issue Date:2008
Series/Report no.:IZA discussion papers 3682
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.
Subjects:Heterogeneous firms
gravity equations
general equilibrium
monopolistic competition
variable demand elasticities
JEL:F21
Persistent Identifier of the first edition:urn:nbn:de:101:1-2008092963
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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