Intraindustry trade and the skill premium: Theory and evidence

• Published in: Journal of international economics Vol. 84; no. 1; pp. 15 - 25
• Main Authors: Dinopoulos, Elias, Syropoulos, Constantinos, Xu, Bin, Yotov, Yoto V.
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.05.2011; Elsevier; Elsevier Sequoia S.A
• Series: Journal of International Economics
• Subjects: Economic models; Economies of scale; Elasticity of substitution; Income distribution; Industrial structure; Labor economics; Labour force; Monopolistic competition; Monopolistic competition Non-homotheticity Output elasticity of substitution; Non-homotheticity; Output elasticity of substitution; Output rate; Skilled workers; Skills; Studies; Total factor productivity; Trade relations; Non-homotheticity; F13; Output elasticity of substitution; F10; F12; Monopolistic competition
• ISSN: 0022-1996; 1873-0353
• DOI: 10.1016/j.jinteco.2011.01.003

We explore theoretically and empirically the relationship between intraindustry trade and the skill premium. Our model features a Chamberlinian-type mechanism of income distribution based on quasi-homothetic consumer preferences, non-homothetic production, and factor-biased scale economies at the firm level. The analysis focuses on a two-country, one-sector model of intraindustry trade with two factor inputs consisting of high-skilled and low-skilled labor. We find that a move from autarky to free trade (a) raises the output of the representative firm and its level of total factor productivity, and (b) reduces (raises) the relative wage of high-skilled workers under the hypothesis of output-skill substitutability (output-skill complementarity). Plant-level evidence from Mexico supports the empirical relevance of the proposed income-distribution mechanism.