Trade between symmetric countries,heterogeneous firms,and the skill premium |
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Authors: | Gonzague Vannoorenberghe |
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Institution: | Department of Economics and CentER, Tilburg University |
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Abstract: | Abstract This paper examines the effects of trade liberalization between symmetric countries on the skill premium. I introduce skilled and unskilled labour in a model of trade with heterogeneous firms à la Melitz (2003) and assume a production technology such that more productive firms are more skill intensive. I show that the effects of trade liberalization on wage inequality crucially depend on the type of trade costs considered and on their initial size. While fixed costs of trade have a potentially non‐monotonic effect on the skill premium, a drop in variable trade costs unambiguously and substantially raises wage inequality. |
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Keywords: | F12 F16 |
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