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International Trade and Earnings Inequality: A New Factor Content Approach

Author

Listed:
  • Rodrigo Adao

    (University of Chicago - Booth School of Business)

  • Paul E. Carrillo

    (George Washington University - Department of Economics)

  • Arnaud Costinot

    (Massachusetts Institute of Technology - Department of Economics)

  • Dave Donaldson

    (Massachusetts Institute of Technology - Department of Economics; CEPR; BREAD: NBER)

  • Dina Pomeranz

    (University of Zurich - Department of Economics; CEPR)

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.

Suggested Citation

  • Rodrigo Adao & Paul E. Carrillo & Arnaud Costinot & Dave Donaldson & Dina Pomeranz, 2020. "International Trade and Earnings Inequality: A New Factor Content Approach," Working Papers 2020-182, Becker Friedman Institute for Research In Economics.
    • Handle: RePEc:bfi:wpaper:2020-182
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    References listed on IDEAS

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    Cited by:

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    2. Federico Huneeus & Kory Kroft & Kevin Lim, 2021. "Earnings Inequality in Production Networks," NBER Working Papers 28424, National Bureau of Economic Research, Inc.
    3. Rafael Dix-Carneiro, 2019. "Trade and Informality in the Presence of Labor Market Frictions and Regulations," 2019 Meeting Papers 144, Society for Economic Dynamics.
    4. Raphael Auer & Ariel Burstein & Sarah Lein & Jonathan Vogel, 2024. "Unequal Expenditure Switching: Evidence from Switzerland," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 91(5), pages 2572-2603.
    5. Osea Giuntella & Lorenzo Rotunno & Luca Stella, 2022. "Globalization, Fertility and Marital Behavior in a Lowest-Low Fertility Setting," CESifo Working Paper Series 9755, CESifo.
    6. Demir, Banu & Cosar, Kerem & Ghose, Devaki & Young, Nathaniel, 2021. "Road Capacity, Domestic Trade and Regional Outcomes," CEPR Discussion Papers 16512, C.E.P.R. Discussion Papers.
    7. Antrà s, Pol & Chor, Davin, 2021. "Global Value Chains," CEPR Discussion Papers 15908, C.E.P.R. Discussion Papers.
    8. Alonso Alfaro Urena & Isabela Manelici & Jose P. Vasquez, 2021. "The Effects of Multinationals on Workers: Evidence from Costa Rican Microdata," Working Papers 285, Princeton University, Department of Economics, Center for Economic Policy Studies..
    9. Trouvain, Florian, 2024. "Technology Adoption, Innovation, and Inequality in a Global World," VfS Annual Conference 2024 (Berlin): Upcoming Labor Market Challenges 302377, Verein für Socialpolitik / German Economic Association.

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    More about this item

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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