International Trade and Earnings Inequality: A New Factor Content Approach

Out­line

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.

Re­search Team

Author

Dina Pomeranz

Assistant Professor of Microeconomics, endowed by the UBS Center

Zurich ZCED

Ro­dri­go Adao

Chica­go Booth

Paul Car­ril­lo

George Wash­ing­ton Uni­ver­si­ty

Ar­naud Costinot

MIT

Dave Don­ald­son

MIT