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International trade and earnings inequality: a new factor content approach


Adão, Rodrigo; Carrillo, Paul; Costinot, Arnaud; Donaldson, Dave; Pomeranz, Dina (2020). International trade and earnings inequality: a new factor content approach. Working Paper Series 28263, National Bureau of Economic Research.

Abstract

We develop a new factor content approach to study the impact of trade on inequality. Our analysis generalizes the theoretical results of Deardorff and Staiger (1988) and improves on past empirical implementations of these results. Combined with unique administrative data from Ecuador, our approach yields measures of individual-level exposure to exports and imports, for both capital and labor income, as well as estimates of the incidence of such exposure across the income distribution. We find that international trade raises earnings inequality in Ecuador, especially in the upper-half of the income distribution. However, the drop in inequality experienced by Ecuador over the last decade would have been less pronounced in the absence of trade.

Abstract

We develop a new factor content approach to study the impact of trade on inequality. Our analysis generalizes the theoretical results of Deardorff and Staiger (1988) and improves on past empirical implementations of these results. Combined with unique administrative data from Ecuador, our approach yields measures of individual-level exposure to exports and imports, for both capital and labor income, as well as estimates of the incidence of such exposure across the income distribution. We find that international trade raises earnings inequality in Ecuador, especially in the upper-half of the income distribution. However, the drop in inequality experienced by Ecuador over the last decade would have been less pronounced in the absence of trade.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:D3, F1, F6, J2
Language:English
Date:December 2020
Deposited On:15 Feb 2021 16:01
Last Modified:15 Feb 2021 16:01
Series Name:Working Paper Series
Number of Pages:86
OA Status:Closed
Publisher DOI:https://doi.org/10.3386/w28263
Official URL:https://www.nber.org/papers/w28263

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