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International trade, skill premium and endogenous labor division: The case of Mexico

Madanizadeh, S. A ; Sharif University of Technology | 2021

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  1. Type of Document: Article
  2. DOI: 10.1016/j.labeco.2021.102030
  3. Publisher: Elsevier B.V , 2021
  4. Abstract:
  5. Why trade liberalizations increase the skill premium? To explain this empirical evidence that is in contrast with the conventional theory of Heckscher-Ohlin, I build up a general equilibrium micro-founded heterogeneous-firm model of international trade where firms make decisions on their division of labor, and firms’ skill-intensities are endogenously determined. I show why the exporters are generally more productive and skill intensive and how trade cost reductions induce more productive firms to choose a higher degree of labor specialization, become more skill intensive and start to export. I further demonstrate how such internal horizontal organizational changes, after a trade cost reduction, can directly increase aggregate skill intensity and the relative demand for skilled workers, resulting in higher skill premium in a general equilibrium setting. Lastly, I calibrate this model to the Mexican data to quantify the rise in the skill premium in the period of its trade liberalization 1985~1993. © 2021
  6. Keywords:
  7. Skill premium ; Trade liberalization ; Firm organization ; Endogenous skill intensity ; Labor specialization ; International trade
  8. Source: Labour Economics ; Volume 71 , 2021 ; 09275371 (ISSN)
  9. URL: https://www.sciencedirect.com/science/article/abs/pii/S0927537121000658