Intra‐industry Trade Liberalization: Why Skilled Workers are More Likely to Support Free Trade

This paper presents a theoretical model and empirical analysis that connects the prevalence of intra‐industry trade with increased wage inequality from trade liberalization in both skilled and unskilled labor abundant countries. The Stolper–Samuelson effect is incorporated into an intra‐industry trade liberalization (intra‐ITL) hypothesis where skilled labor opposes protectionism in all countries engaged in intra‐industry trade because skilled workers gain at the expense of unskilled workers from multilateral trade liberalization within the skill‐intensive sector. We examine empirical evidence on whether skilled individuals are more supportive of trade liberalization than unskilled individuals across 31 countries with different levels of intra‐industry trade and skill endowments. We find that the extent to which countries engage in intra‐industry trade in high‐tech commodities is strongly linked with the intensity of opposition to protection by skilled labor. Regression results strongly support our hypothesis that skilled workers, almost everywhere, are more likely to support free trade.     

The Roles of Innovators and Labor in a Schumpeterian Factor Endowments Based Model of Intra‐industry Trade

This paper builds a model of Schumpeterian innovation and trade that emphasizes endowments of innovators and labor as a key factor in determining the pattern of trade. The model suggests a strong complementarity between intra‐industry and inter‐industry trade. The pattern of inter‐industry vs intra‐industry trade is analyzed using the Grubel–Lloyd index. The theoretical model predicts that the prominence of intra‐industry trade is a nonlinear function of the ratio of the proportion of world knowledge domestically generated to the domestic share of the world labor supply. Strong empirical evidence for this key result is presented and implications are discussed.     

North–South Trade Liberalization and Economic Welfare

We consider a general equilibrium model of a developing economy (the South) that opens to trade with a developed economy (the North). The southern economy is characterized by open urban unemployment and rural–urban migration, a competitive agricultural sector and a monopolistically competitive manufacturing sector. Hence, there is potential for both inter‐ and intra‐industry trade to arise on liberalization, in addition to distortionary effects of duality. Southern comparative advantage in agriculture may arise from the labor market distortion and the basis for intra‐industry trade is love for variety. We characterize various configurations of the trade pattern, and the resulting welfare consequences of opening to trade in this context. We illustrate a new mechanism under which in some circumstances it may be possible for trade liberalization to lower economic welfare in the South.     

A Generalized Exactly Additive Decomposition of Aggregate Labor Productivity Growth

Aggregate labor productivity (ALP) growth—i.e., growth of output per unit of labor—may be decomposed into additive contributions due to within‐sector productivity growth effect, dynamic structural reallocation effect (Baumol effect), and static structural reallocation effect (Denison effect) of cross‐sectional components (e.g., industry or region) of output and labor. This paper implements ALP growth decomposition that is “generalized” to output in constant prices and to output in chained prices (i.e., chained volume measure or CVM) and “exactly additive” since with either output the sum of contributions exactly equals “actual” ALP growth. It compares this “generalized exactly additive” decomposition (GEAD) to the “traditional” (TRAD) ALP growth decomposition devised for output in constant prices. The results show GEAD and TRAD are exactly additive when output is in constant prices, but GEAD is exactly additive while TRAD is not when output is in CVM. Also, GEAD components are empirically purer than or analytically superior to those from TRAD. Moreover, considering that contributions to ALP growth can be classified by industry or region each year over many years, GEAD provides a more well‐grounded picture over time of industrial or regional transformation than TRAD. Therefore, GEAD should replace TRAD in practice.     

Intra‐industry Trade Liberalization and the Environment

This paper examines how trade liberalization affects national and global pollution in a multi‐country model incorporating monopolistic competition and intra‐industry trade as well as inter‐industry trade. Each country produces skill‐intensive differentiated goods and labor‐intensive goods. Pollution is a by‐product of production but pollution abatement can be undertaken. Regardless of country characteristics, if the differentiated‐good sector is sufficiently cleaner (dirtier) then, without any change in environmental taxes, a multilateral reduction in import protection accorded to the differentiated good or to both goods typically leads to a decline (rise) in pollution in all countries. Pollution havens tend not to arise.     

Estimating the effects of non‐discriminatory trade policies within structural gravity models

We propose a simple method to identify the effects of unilateral and non‐discriminatory trade policies on bilateral trade within a theoretically consistent empirical gravity model. Specifically, we argue that structural gravity estimations should be performed with data that include not only international trade flows but also intra‐national trade flows. The use of intra‐national sales allows identification of the effects of non‐discriminatory trade policies such as most favoured nation tariffs, even in the presence of exporter and importer fixed effects. A byproduct of our approach is that it can be used to recover estimates of the trade elasticity, a key parameter for quantitative trade models. We demonstrate the effectiveness of our techniques in the case of most favoured nation tariffs and “time to export” as representative non‐discriminatory determinants of trade on the importer and on the exporter side, respectively. Our methods can be extended to quantify the impact on trade of any country‐specific characteristics as well as any non‐trade policies.     

Globalization,Worker Mobility and Wage Inequality

In the present paper, I integrate frictional labor markets with on‐the‐job search into an otherwise standard heterogeneous firm model of intra‐industry trade. Most importantly, I show that the returns to workers' inter‐firm mobility are higher in a trade equilibrium than in autarky. Intuitively, by favoring large and productive firms, international trade amplifies the disparities in profitability between small and large firms. Hence, the returns to labor reallocation across firms rise. In view of the empirically observed higher inter‐firm mobility among high‐skill workers, this suggests a skill‐biased impact of trade liberalization.     

BORDER EFFECTS WITHOUT BORDERS: WHAT DIVIDES JAPAN'S INTERNAL TRADE?

This article identifies a “border” effect in the absence of a border. The finding that trade between east and west Japan is 23.1% to 51.3% lower than trade within both country parts is established despite the absence of an obvious east–west division due to historical borders, cultural differences, or past civil wars. Postwar agglomeration processes, reflected by the contemporaneous structure of Japan's business and social networks, instead of cultural differences, induced by long‐lasting historical shocks, are identified as an explanation for the east–west bias in intra‐Japanese trade.     

Monopolistic Competition and North–South Trade

This paper examines the consequences of opening to international trade for a developing economy with open urban unemployment and rural–urban migration, where the urban sector is monopolistically competitive. It is shown that there exists a threshold level of urbanization prior to which increases in product variety will be reflected in increased urban unemployment, that opening to intra‐industry trade with a high‐wage economy (i.e. North–South trade) will reduce the rate of urban unemployment by a greater amount than intra‐industry trade with a similar economy, and that trade intervention in the South may lower welfare by reducing varieties produced in the North.     

A New Dynamic Trade Model of Increasing Returns and Monopolistic Competition

This paper formulates a two‐country by two‐factor by two‐good dynamic Chamberlin–Heckscher–Ohlin model of international trade with endogenous time preferences. After proving the existence, uniqueness and local saddle‐point stability of the steady state, we examine the relationship between initial factor endowment and trade patterns in the steady state. It will be shown that (i) given that the representative household in each country supplies an equal amount of labor, only intra‐industry trade occurs in the steady state and (ii) other things being equal, the country with higher labor efficiency becomes the net exporter of the labor‐intensive good.     

Externalities,Productivity and Sustained Growth

This paper shows that the existence of endogenous growth, in the closed‐form solution, in a single sector economy with a convex technology in an overlapping generations (OLG) framework, which attempts to fill the current gap in endogenous growth theory. It finds there is an unbounded growth when trade, in the form of knowledge spillover, affects labor productivity through the formation of human capital with self‐education that is not an independent sector but builds the human capital here. This conclusion holds even though there is the “limited income” expressed as the “non‐increasing wage/investment ratio” for each generation. Moreover, it shows the convergence of growth rates for each country, which is unique and constant, while the growth rate per capita negatively relates with each country's population growth rate. Also, there is no “poverty trap” with the introduction of externalities that is different from existing literature.     

Reciprocal Dumping with Product Differentiation*

This paper examines if international trade can reduce total welfare in an international oligopoly with differentiated goods. We show that intra‐industry trade, i.e. “reciprocal dumping,” can result in lower total surplus than autarky in a Cournot model for any degree of product differentiation. Moreover, trade can reduce welfare compared to autarky in a Bertrand model when the local markets are sufficiently competitive and products are sufficiently close substitutes. Otherwise it unambiguously increases welfare.     

Guaranteed Manufactured without Child Labor: The Economics of Consumer Boycotts, Social Labeling and Trade Sanctions

Does labeling products “Child‐Labor Free” provide a market‐based solution to the pervasive employment of child labor? This paper explores the promise of social labeling in the context of its four oft‐noted objectives: child labor employment, consumer information, welfare, and trade linkages, when competition between the North and South is based both on comparative cost advantage, and the use of child labor as a hidden product attribute. We show that (i) social labeling benefits consumers and Southern producers, whereas children and Northern producers are worse off; (ii) trade sanctions on unlabeled products deteriorates Southern terms of trade, but leaves the incidence of child labor strictly unaffected; and (iii) a threat to sanction imports of unlabeled Southern products discourages the South from maintaining a credible social labeling program. We also explore the question of whether social labeling should be viewed as a transitory or a permanent institution in developing economies.     

Factor price overshooting with trade liberalization: theory and evidence

This paper develops an intra‐industry trade model with skilled and unskilled labor as factors of production, endogenous accumulation of skilled labor and firm heterogeneity in factor intensities to examine the effect of trade reforms on factor prices. Since exporters are more skill intensive than non–exporters, a decrease in trade barriers initially increases wage inequality between skilled and unskilled workers, as a result of an increase in the relative demand for skilled labor. Over time, however, as agents respond to the change in relative wages by investing in skilled labor, the relative wage of skilled labor decreases. Evidence from Chilean plant–level data supports the idea of factor price overshooting with trade liberalization.     

Trade Policy in Lobbying Equilibrium: With Non‐Traded and Traded Final Goods and Intermediate Inputs

The paper derives trade policies endogenously for final consumption and intermediate input industries in the presence of a non‐traded sector. Contrary to what the existing literature suggests, results show that there is no definite relation between lobbying status and the direction of trade policy of an industry. Trade protection of an industry depends on how its consumption (horizontal) and production (vertical) linkages with other industries reinforce or cancel out its lobbying efforts. To cite a few results, (i) an organized industry may face trade tax, whereas an unorganized one may obtain protection; (ii) an organized downstream industry may not be able to impose trade tax to an unorganized upstream industry, (iii) an organized upstream industry may not hurt unorganized downstream industry, (iv) lobby for non‐traded industry alone can influence trade policies, and (v) lobby for traded industry affects the size of the non‐traded sector in the economy.     

The Role of Migration in the Variety and Quality of Trade: Evidence from Germany

We explore the migration‐trade nexus in the case of Germany over the period 2000–09, disentangling the two dimensions of intra‐industry trade (vertical and horizontal). We find that immigration is positively and significantly related to intra‐industry trade. However, the magnitude and statistical significance of migration's impact on trade are considerably higher for horizontal intra‐industry trade and increase with the difference in the level of development between Germany and the partner countries. This pattern is consistent with the view that information flows between migrant communities and their country of origin may be more important for consumer goods (where trade in varieties prevails) and that this information effect is more important if trading countries are very different.     

Market Integration,Choice of Technology,and Welfare

This paper develops an international trade model where firms in a duopoly may diversify their technologies for strategic reasons. The firms face the same set of technologies given by a tradeoff between marginal costs and fixed costs, but depending on trade costs firms may choose different technologies. Market integration may induce a technological restructuring where firms either diversify their technologies or switch to a homogeneous technology. In general, market integration improves welfare. However, a small decrease of trade costs which induces a switch from heterogeneous technologies to a homogeneous technology may locally reduce global welfare. The model also shows that productivity differences lead to intra‐industry firm heterogeneity in size and exports similar to the “new–new” trade models with monopolistic competition.     

Marginal Intraindustry Trade and Labor Adjustment

In the context of Ethier's model of the division of labor, this paper accomplishes three tasks. First, it complements existing literature on the algebraic properties of marginal intraindustry trade (MIIT) measures by embedding one of these measures in a general equilbrium model. Consistent with the existing literature, it is found that change in the Grubel–Lloyd index provides systematically different economic information from change in the MIIT index. Second, it examines the connection between intraindustry trade and intra- industry adjustment. Here it is found that the informal assumption that intraindustry trade generates only intraindustry adjustment cannot be sustained. That is, intraindustry trade will generally induce interindustry adjustment. Finally, because intraindustry trade generates interindustry adjustment, increased intraindustry trade will generally induce long-run changes in relative factor prices. This suggests, given the prominence of intraindustry trade in OECD countries, that there may be problems with inference on the link between rade and wages undertaken in a strict Heckscher–Ohlin framework.     

A Schumpeterian North–South Growth Model of Trade and Wage Inequality*

The paper presents a dynamic general‐equilibrium model of interindustry North–South trade that is used to analyze the effects of trade liberalization on the Northern wage distribution. Both countries have a low‐tech sector where consumer goods of constant quality are produced by use of unskilled labor. The North also has a high‐tech sector that employs skilled labor and features a quality‐ladder model structure with endogenous growth. Both innovation and skill acquisition rates are endogenously determined. In a balanced trade equilibrium, it is found that Southern‐originated (Northern‐originated) trade liberalization leads to an increase (decrease) in Northern wage inequality both between skilled and unskilled workers and within the group of skilled workers. The endogenous change in the Southern terms of trade determines the direction of change in unskilled wages in both the North and the South.     

Intra‐firm trade,exporting, importing,and firm performance

Abstract This paper examines firm heterogeneity in terms of size, wages, capital intensity, and productivity between domestic and foreign‐owned firms that engage in intra‐firm trade, firms that export and import, firms that import only, and firms that export only. As previously documented, heterogeneity between different groups of trading firms is substantial. Taking into account intra‐firm trade in addition to exporting and importing yields new insights into the productivity advantage previously established for exporting firms. The results presented here show that this premium accrues only to exporters that also import and to exporters that also engage in intra‐firm trade, but not to firms that export only. Using simultaneous quantile regressions, the paper illustrates that heterogeneity within different groups of trading firm is equally large. Some of this within‐group heterogeneity can be attributed to differences in trading partners.