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

Simon Galle, Andrés Rodríguez-Clare, Moises Yi

NBER Working Paper No. 23737
Issued in August 2017
NBER Program(s):International Trade and Investment

We develop a multi-sector gravity model with heterogeneous workers to quantify the aggregate and group-level welfare effects of trade. We estimate the model using the structural relationship between China-shock driven changes in manufacturing employment and average earnings across US groups defined by commuting zone and education. 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 are positive and only slightly lower than with the standard aggregation.

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Document Object Identifier (DOI): 10.3386/w23737

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