Trade, wages and productivity

Arbeitspapier

We develop a new general equilibrium model of trade with heterogeneous firms, variable demand elasticities and endogenously determined wages. Trade integration favours wage convergence, boosts competition, and forces the least efficient firms to leave the market, thereby affecting aggregate productivity. Since wage and productivity responses are endogenous, our model is well suited to studying the impact of trade integration on aggregate productivity and factor prices. Using Canada-US interregional trade data, we first estimate a system of theory-based gravity equations under the general equilibrium constraints generated by the model. Doing so allows us to measure 'border effects' and to decompose them into a 'pure' border effect, relative and absolute wage effects, and a selection effect. Using the estimated parameter values, we then quantify the impact of removing the Canada-US border on wages, productivity, mark-ups, the share of exporters, the mass of varieties produced and consumed, and thus welfare. Finally, we provide a similar quantification with respect to regional population changes.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: NBB Working Paper ; No. 161

Classification and Topics

• Classification: Wirtschaft ; Models of Trade with Imperfect Competition and Scale Economies; Fragmentation ; Economic Integration ; Trade: Forecasting and Simulation
• Subject: heterogeneous firms ; gravity equations ; general equilibrium ; monopolistic competition ; variable demand elasticities ; Regionale Wirtschaftsintegration ; Wirtschaftsintegration ; Grenzregion ; Lohn ; Produktivität ; Gravitationsmodell ; Allgemeines Gleichgewicht ; Monopolistischer Wettbewerb ; Kanada ; USA

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Behrens, Kristian ; Mion, Giordano ; Murata, Yasusada ; Südekum, Jens
• Event: Veröffentlichung
• (who): National Bank of Belgium
• (where): Brussels
• (when): 2009

Further information

• Handle: http://hdl.handle.net/10419/144373
• Last update: 10.03.2025, 11:44 AM CET