Globalization, Trade Imbalances and Labor Market Adjustment
We argue that modeling trade imbalances is crucial to understanding transitional dynamics in response to globalization shocks. We build and estimate a general equilibrium, multi-country, multi-sector model of trade with two key ingredients: (a) endogenous trade imbalances arising from households' consumption and saving decisions; (b) labor market frictions across and within sectors. We use our model to perform several empirical exercises. We find that the “China shock” accounted for 25% of the decline in US manufacturing between 2000 and 2014—twice the magnitude predicted from a model imposing balanced trade. A concurrent rise in US service employment led to a negligible aggregate unemployment response. We then benchmark our model's predictions for the gains from trade against the popular “ACR” sufficient statistics approach. We find that our predictions for the long-run gains from trade and consumption dynamics significantly diverge.
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Copy CitationRafael Dix-Carneiro, João Paulo Pessoa, Ricardo M. Reyes-Heroles, and Sharon Traiberman, "Globalization, Trade Imbalances and Labor Market Adjustment," NBER Working Paper 28315 (2021), https://doi.org/10.3386/w28315.
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Published Versions
Rafael Dix-Carneiro & João Paulo Pessoa & Ricardo Reyes-Heroles & Sharon Traiberman, 2023. "Globalization, Trade Imbalances, and Labor Market Adjustment," The Quarterly Journal of Economics, vol 138(2), pages 1109-1171. citation courtesy of