Intraindustry Trade and the Wage Premium：Theory and Evidence.docVIP

Intraindustry Trade and the Wage Premium：Theory and Evidence Intraindustry Trade and the Wage Premium: Theory and Evidence by Elias Dinopoulos Constantinos Syropoulos Bin Xu Yoto Yotov University of Florida Drexel University CEIBS Drexel University Current Version: April 30, 2010 Abstract: We explore theoretically and empirically the relationship between intraindustry trade and the wage premium. Our theoretical model features 8#004699a Chamberlinian-type mechanism of income distribution based on quasi-homothetic consumer preferences, non-homothetic production, and factor-biased scale economies at the firm/variety level. The analysis focuses on #004699a two-country, one-sector model of intrain-dustry trade with two factor inputs consisting of high-skilled and low-skilled labor. We find that #004699a move from autarky to free trade (#004699a) raises the output of the representative firm and its level of total factor pro-ductivity, and (b) reduces (raises) the relative wage of high-skilled workers under the hypothesis of out-put-skill substitutability (output-skill complementarity). Plant-level evidence from Mexico supports the empirical relevance of the proposed income-distribution mechanism. An electronic copy of the latest version of the paper is available at //bear.cba.ufl.edu/dinopoulos/Research.html JEL Classification: F10, F12, F13 Key words: Monopolistic competition, intraindustry trade, non-homotheticity, output-skill complemen-tarity, labor efficiency. Corresponding author: Elias Dinopoulos, Department of Economics, University of Florida, Gaines-ville, FL. 32611. E-mail: elias.dinopoulos@cba.ufl.edu; Phone: (352) 392-8150; Fax: (352) 392-7860. Acknowledgements: We are indebted to the Instituto Nacional de Estadistica y Geografia (INEGI) offices in Aguascalientes, Mexico, and greatly appreciate their generous hospitality and support in connection with the empirical part