The Distributional Effects of Trade: Theory and Evidence from the United States

Abstract:

Abstract

We quantify the distributional effects of trade shocks in the U.S. through consumer prices (expenditure channel) and wages (earnings channel). A quantitative trade model links these channels to compositional differences in expenditures and earnings across household groups. New data reveal that spending shares on imports are similar across education and income groups, implying a neutral expenditure channel. Estimated differences in workers’ exposure to import competition, exporting, and income effects indicate that the earnings channel favors college graduates. Overall, a uniform trade cost reduction generates welfare gains that are 25% larger for college graduates. Similar results apply to trade with China.

Media coverage: The Upshot (New York Times), Deutsche WelleLes Echos (in French)

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Last updated on 03/29/2019