Trade, Wages, and Productivity

57 Pages Posted: 5 Dec 2012

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 - Advanced Research Institute for the Sciences and Humanities

Jens Suedekum

University of Duisburg-Essen

Multiple version iconThere are 4 versions of this paper

Date Written: November 30, 2012

Abstract

We develop a new general equilibrium monopolistic competition model with variable demand elasticity, heterogeneous firms, and multiple asymmetric regions. Wages, productivity, consumption diversity, and markups across firms and markets are all endogenously determined and respond to trade integration in a way that is consistent with empirical evidence. Using Canada-US regional data, we structurally estimate the model and simulate the impacts of removing all trade barriers generated by the Canada-US border. We find that Canadian average labor productivity increases by 8.03%, whereas US average labor productivity rises by just 1.02%. Consumers’ exposure to market power falls sizably by up to 12.11% in the Canadian provinces, and by up to 2.82% in the US states. At the firm level, however, markup changes are ambiguous and depend on the firm’s productivity and location. Our results suggest that markups on the firms’ side provide a very different piece of information than markups on the consumers’ side, which are central to any welfare statement.

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

JEL Classification: F120, F150, F170

Suggested Citation

Behrens, Kristian and Mion, Giordano and Murata, Yasusada and Suedekum, Jens, Trade, Wages, and Productivity (November 30, 2012). CESifo Working Paper Series No. 4011. Available at SSRN: https://ssrn.com/abstract=2184721

Kristian Behrens

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 - Advanced Research Institute for the Sciences and Humanities ( email )

Tokyo
Japan

Jens Suedekum (Contact Author)

University of Duisburg-Essen

Lotharstrasse 1
Duisburg, 47048
Germany

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