The Choice of Structural Model in Trade-Wages Decompositions

CSGR Working Paper No. 34-99

33 Pages Posted: 19 Oct 1999

See all articles by Lisandro Abrego

Lisandro Abrego

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: May 1999

Abstract

This paper explores the use of structural models as an alternative to reduced form methods when decomposing observed joint trade and technology driven wage changes into components attributable to each source. Conventional mobile factors Heckscher-Ohlin models typically reveal problems of specialisation unless price changes accompanying trade shocks are small, and can also produce wide ranges for the decomposition for parameterisations consistent with the joint change. A differentiated goods model which generalises Heckscher-Ohlin removes problems of specialisation and concentrates the range of decompositions more narrowly, but introduces larger demand side responses to trade shocks which greatly reduce the effect of trade. The conclusion offered is that the choice of structural model matters for decomposing observed wage changes into trade and technology components, and that reduced-form methods which do not discriminate between alternative structural models may not be that informative for such decompositions.

JEL Classification: F10, J31

Suggested Citation

Abrego, Lisandro, The Choice of Structural Model in Trade-Wages Decompositions (May 1999). CSGR Working Paper No. 34-99, Available at SSRN: https://ssrn.com/abstract=182781 or http://dx.doi.org/10.2139/ssrn.182781

Lisandro Abrego (Contact Author)

International Monetary Fund (IMF) ( email )

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