Behrens, Kristian, Mion, Giordano, Murata, Yasusada and Südekum, Jens (2009) Trade, wages and productivity. CEP Discussion Paper, No. 942. Centre for Economic Performance, London School of Economics and Political Science, London, UK.
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We develop a new general equilibrium model of monopolistic competition with heterogeneous firms, variable demand elasticity and multiple asymmetric regions, in which trade integration induces wage and productivity changes. Using Canada-US interregional trade data, we structurally estimate a theory-based gravity equation system featuring endogenous wages and productivity. Given the estimated parameter values, we first decompose border effects into a pure border effect, relative and absolute wage effects, and a selection effect. We then quantify the impacts of removing the trade distortions generated by the Canada-US border on regional market aggregates such as wages, productivity, markups, the mass of varieties produced and consumed, as well as welfare. Last, we extend the counterfactual analysis to the firm level by generating productivity distributions and their changes via simulation.
|Item Type:||Monograph (Discussion Paper)|
|Additional Information:||© 2009 The authors|
|Uncontrolled Keywords:||firm heterogeneity; monopolistic competition; general equilibrium; endogenous markups; gravity equation system; counterfactual analysis|
|Library of Congress subject classification:||H Social Sciences > HB Economic Theory
H Social Sciences > HD Industries. Land use. Labor
|Journal of Economic Literature Classification System:||F - International Economics > F1 - Trade > F15 - Economic Integration
F - International Economics > F1 - Trade > F17 - Trade Forecasting and Simulation
F - International Economics > F1 - Trade > F12 - Models of Trade with Imperfect Competition and Scale Economies
|Sets:||Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
|Identification Number:||No. 942|
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