Trade Development and Political Economy Presents: Ariell Reshef

Trade Development and Political Economy Presents: Skill Biased Heterogeneous Firms, Trade Liberalization, and the Skill Premium by Ariell Reshef

Authors: Ariell Reshef and James Harrigan
Speaker: Ariell Reshef

Abstract: The authors propose a theory that rising globalization and rising wage inequality are related because trade liberalization raises the demand facing highly competitive skill-intensive firms. In their model, only the lowest-cost firms participate in the global economy exactly along the lines of Melitz (2003). In addition to differing in their productivity, firms differ in their skill intensity. The authors model skill-biased technology as a correlation between skill intensity and technological acumen, and they estimate this correlation to be large using firm-level data from Chile in 1995. A fall in trade costs leads to both greater trade volumes and an increase in the relative demand for skill, as the lowest-cost/most-skilled firms expand to serve the export market while less skill-intensive non-exporters retrench in the face of increased import competition. This mechanism works regardless of factor endowment differences, so the authors provide an explanation for why globalization and wage inequality move together in both skill-abundant and skill-scarce countries. In their model countries are net exporters of the services of their abundant factor, but there are no Stolper-Samuelson effects because import competition affects all domestic firms equally.

Short Bio: Ariell Reshef is Assistant Professor of Economics at the University of Virginia. His research interests are in international trade and development economics. His work has been published in top economics journals like the Quarterly Journal of Economics and the Review of Economics and Statistics.