Slicing the Pie: Quantifying the Aggregate and Distributional Effects of Trade

63 Pages Posted: 14 Dec 2017 Last revised: 16 Oct 2020

See all articles by Simon Galle

Simon Galle

BI Norwegian Business School - Department of Economics

Andrés Rodríguez-Clare

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER)

Moises Yi

U.S. Census Bureau

Multiple version iconThere are 2 versions of this paper

Date Written: October 2020

Abstract

We develop a multi-sector gravity model with heterogeneous workers to quantify the aggregate and group-level welfare effects of trade. The model generalizes the specific-factors intuition to a setting with labor reallocation, leads to a parsimonious formula for the group-level welfare effects from trade, and nests the aggregate results in Arkolakis, Costinot and Rodriguez-Clare (2012). We estimate the model using the structural relationship between China-shock driven changes in manufacturing employment and average earnings across US groups defined as commuting zones. We find that the China shock increases average welfare but some groups experience losses as high as five times the average gain. Adjusted for plausible measures of inequality aversion, gains in social welfare remain positive and deviate only slightly from those according to the standard aggregation method. We also develop and estimate an extension of the model that endogenizes labor force participation and unemployment, finding similar welfare effects from the China shock.

Keywords: Inequality, Trade, China shock, local labor markets, unemployment

JEL Classification: F1, J2

Suggested Citation

Galle, Simon and Rodríguez-Clare, Andrés and Yi, Moises, Slicing the Pie: Quantifying the Aggregate and Distributional Effects of Trade (October 2020). Available at SSRN: https://ssrn.com/abstract=3086510 or http://dx.doi.org/10.2139/ssrn.3086510

Simon Galle (Contact Author)

BI Norwegian Business School - Department of Economics ( email )

Nydalsveien 37
Oslo, 0484
Norway

Andrés Rodríguez-Clare

University of California, Berkeley - Department of Economics ( email )

579 Evans Hall
Berkeley, CA 94709
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Moises Yi

U.S. Census Bureau

4600 Silver Hill Road
D.C., WA 20233
United States

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