DP9900 Trade Imbalances, Export Structure and Wage Inequality

Author(s): Rosario Crinò, Paolo Epifani
Publication Date: March 2014
Keyword(s): Average Skill Intensity of Exports, North-South Trade Imbalances, skill premia
JEL(s): F1
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=9900

We study, both theoretically and empirically, how trade imbalances affect the structure of countries' exports and wage inequality. We show that, in a Heckscher-Ohlin model with a continuum of goods, a Southern (Northern) trade surplus leads to an increase (reduction) in the average skill intensity of exports, in the relative demand for skills and in the skill premium in both countries. We provide robust support for the mechanism underlying these predictions using a large panel of countries observed over the past 30 years. Our results suggest that the large and growing North-South trade imbalances arisen over the last three decades may have exacerbated wage inequality worldwide.