What are the Results of Product-Price Studies and What Can We Learn from Their Differences?

Abstract

In recent years many economists have analyzed whether international trade has contributed to rising U.S. wage inequality by changing relative product prices. In this paper I survey the findings of nine product-price' studies which together demonstrate how the methodology of product-price studies has evolved. I then synthesize the findings of these nine studies and draw two main conclusions. The first conclusion is that this literature has a refined set of empirical strategies for applying the Stolper-Samuelson theorem to the data from which important methodological lessons can be learned. The second main conclusion is that despite the methodological progress that has been made, research to date still has fundamental limitations regarding the key question of how much international trade has contributed to rising wage inequality. Most importantly, more work needs to link exogenous forces attributable to international trade to actual product-price changes.