Globalization, Trade Imbalances and Inequality
79 Pages Posted: 27 Jun 2022 Last revised: 26 Jun 2023
Date Written: June 2022
Abstract
We investigate the role of trade imbalances for the distributional consequences of globalization. We do so through the lens of a quantitative, general equilibrium, multi-country, multi-sector model of trade with four key ingredients: (a) workers with different levels of skills are organized into separate representative households; (b) endogenous trade imbalances arise from households' consumption and saving decisions; (c) production exhibits capital-skill complementarity; (d) labor market frictions across sectors and non-employment. We conduct a series of counterfactual experiments that illustrate the quantitative importance of both trade imbalances and capital-skill complementarity for the dynamics of the skill premium. We show that modelling trade imbalances can lead to stark differences between short- and long-run consequences of globalization shocks for the skill premium.
Suggested Citation: Suggested Citation