The Choice of Structural Model in Trade-Wages Decompositions [report]

Lisandro Abrego, John Whalley
1999 unpublished
This paper explores the use of structural models as an alternative to reduced form methods when decomposing observed joint trade and technology driven wage changes into components attributable to each source. Conventional mobile factors Heckscher-Ohlin models reveal problems of specialisation unless price changes accompanying trade shocks are small, and also produce wide ranges for the decomposition for parameterisations consistent with the joint change. A differentiated goods model which
more » ... s model which generalises Heckscher-Ohlin removes problems of specialisation and concentrates the range of decompositions more narrowly, but introduces larger demand side responses to trade shocks which greatly reduce the effect of trade. The conclusion offered is that the choice of structural model matters for decomposing observed wage changes into trade and technology components, and that reduced-form methods which do not discriminate between alternative structural models may not * This paper forms part of a project on Globalisation and Social Exclusion supported by the Targeted Socio Economic Research programme of the European Union. We are grateful to Bob Anderton, Paul Brenton, Matthias Luecke, and Ken Wallis for helpful comments on an earlier draft. be that informative for such decompositions. 1.
doi:10.3386/w7312 fatcat:eevtaql3q5h5pkeploxtsbaw4y