International Trade and Earnings Inequality: A New Factor Content Approach

86 Pages Posted: 17 Dec 2020

See all articles by Rodrigo Adao

Rodrigo Adao

University of Chicago - Booth School of Business

Paul E. Carrillo

George Washington University - Department of Economics

Arnaud Costinot

University of California, San Diego (UCSD) - Department of Economics; Massachusetts Institute of Technology (MIT) - Department of Economics

Dave Donaldson

Massachusetts Institute of Technology (MIT); Stanford University - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Bureau for Research and Economic Analysis of Development (BREAD)

Dina Pomeranz

University of Zurich; Centre for Economic Policy Research (CEPR)

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Date Written: December 16, 2020

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

Adao, Rodrigo and Carrillo, Paul E. and Costinot, Arnaud and Costinot, Arnaud and Donaldson, Dave and Donaldson, Dave and Pomeranz, Dina, International Trade and Earnings Inequality: A New Factor Content Approach (December 16, 2020). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2020-182, Available at SSRN: https://ssrn.com/abstract=3750388 or http://dx.doi.org/10.2139/ssrn.3750388

Rodrigo Adao (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
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HOME PAGE: http://www.rodrigoadao.com

Paul E. Carrillo

George Washington University - Department of Economics ( email )

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Arnaud Costinot

University of California, San Diego (UCSD) - Department of Economics ( email )

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Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Dave Donaldson

Massachusetts Institute of Technology (MIT) ( email )

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Stanford University - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
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Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Bureau for Research and Economic Analysis of Development (BREAD) ( email )

Duke University
Durham, NC 90097
United States

Dina Pomeranz

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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