Trade, Wages, and Productivity

47 Pages Posted: 26 Aug 2009

See all articles by Kristian Behrens

Kristian Behrens

University of Quebec at Montreal (UQAM) - Department of Economics

Giordano Mion

University of Sussex - Department of Economics; London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Yasusada Murata

Nihon University

Jens Suedekum

Heinrich-Heine-University Duesseldorf, Duesseldorf Institute for Competition Economics (DICE); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Institute for the Study of Labor (IZA)

Multiple version iconThere are 4 versions of this paper

Date Written: July 2009

Abstract

We develop a new general equilibrium model of monopolistic competition with heterogeneous firms, variable demand elasticity and multiple asymmetric regions, in which trade integration induces wage and productivity changes. Using Canada-US interregional trade data, we structurally estimate a theory-based gravity equation system featuring endogenous wages and productivity. Given the estimated parameter values, we first decompose border effects'into a pure'border effect, relative and absolute wage effects, and a selection effect. We then quantify the impacts of removing the trade distortions generated by the Canada-US border on regional market aggregates such as wages, productivity, markups, the mass of varieties produced and consumed, as well as welfare. Last, we extend the counterfactual analysis to the firm level by generating productivity distributions and their changes via simulation.

Keywords: counterfactual analysis, endogenous markups, firm heterogeneity, general equilibrium, gravity equation system, monopolistic competition

JEL Classification: F12, F15, F17

Suggested Citation

Behrens, Kristian and Mion, Giordano and Murata, Yasusada and Südekum, Jens, Trade, Wages, and Productivity (July 2009). CEPR Discussion Paper No. DP7369. Available at SSRN: https://ssrn.com/abstract=1461998

Kristian Behrens (Contact Author)

University of Quebec at Montreal (UQAM) - Department of Economics ( email )

P.O. Box 8888, Downtown Station
Montreal, Quebec H3C 3P8
Canada

Giordano Mion

University of Sussex - Department of Economics ( email )

Falmer, Brighton BN1 9SL
United Kingdom

HOME PAGE: http://sites.google.com/site/giordanomionhp/

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Yasusada Murata

Nihon University ( email )

Tokyo
Japan

Jens Südekum

Heinrich-Heine-University Duesseldorf, Duesseldorf Institute for Competition Economics (DICE) ( email )

Universitaetsstr. 1
Duesseldorf, NRW 40225
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

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