Working Papers

Trade, Labor Reallocation Across Firms, and Wage Inequality. 

(version with extended appendix, PDF)

 

Abstract: This paper develops a framework for studying the effects of higher trade openness on the wage distribution in which strong skill-productivity complementarities in production imply that inequality rises as workers reallocate toward more-productive (skill-intensive) firms in the same industry. The model features a large number of skill groups and weaker and more empirically relevant restrictions on firm selection into exporting than standard heterogenous-firms models. An autarkic economy that opens to trade always experiences a pervasive rise in wage inequality under no firm entry, with wage polarization being another possibility under free entry. Theoretically, more outcomes are possible following a trade liberalization in a trading economy. In a calibrated version of the framework, any increase in trade openness always leads to pervasively higher wage inequality. The analysis highlights the importance of properly accounting for the role of new exporters (extensive margin) in shaping the aggregate relative demand for skills, a channel controlled by assumptions affecting selection into exporting.

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Publications

Comparative Advantage in Innovation and Production, AEJ: Macroeconomics, 13(3): 357-96

Online Appendix (A-B). Additional Appendix (C).

 

Abstract: This paper develops a dynamic model of innovation and international trade in which agents can direct their research efforts to specific goods in the economy. Trade affects the direction of innovation through its impact on the expected market size for an invention, leading to a two-way relationship between trade and technology absent in standard quantitative Ricardian models. Following a theory-consistent strategy to estimate the extent of endogenous adjustments in technology, I find that they can account for about a half of the observed variance in comparative advantage in production in a sample of 29 countries and 18 manufacturing industries. In addition, the model suggests that standard Ricardian models overestimate the reductions in real income from increases in trade costs, and underestimate the rise in real income due to trade liberalizations.

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Policy Writings

A Sourcing Risk Index for U.S. Manufacturing Industries (with Andrea De Michelis), FEDS Notes. Washington: Board of Governors of the Federal Reserve System, September, 08, 2023, https://doi.org/10.17016/2380-7172.3367. 

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Older Working Papers

Trade, Matching and Inequality 

 

Abstract: This paper develops a general equilibrium model to study the effect of trade on the wage distribution that emphasizes within-industry reallocation and heterogeneity of firms and workers. The exit of the least productive firms and the selection into trade of the most productive ones induce labor reallocations in which workers experience "firm" upgrading driving up the high-to-low wage.