Yang Xu

Department of Economics
University of Maryland
College Park, MD 20742

Graduate Program:
301-405-3544

Undergraduate Program:
301-405-3266

Research

Structural Change and Skill Premium in a Quantitative Model of Trade (Job Market Paper)  [PDF]


I develop a multi-country general equilibrium trade model to investigate the effects of international trade and technical change on structural change and the skill premium. In my three-sector framework, trade and technical change affect structural change by altering the household and intermediate expenditure shares for each sector. Sectors differ in their skill intensity, so that reallocation to skill intensive sectors increases the skill premium. I apply the framework to 37 countries, and the model replicates the changes in trade shares, production shares, consumption shares, and skill premium from 1997 to 2007. I find that (1) trade increased the skill premium in all countries; (2) trade and technical change each explains half of the increase in skill premium in countries where both channels contributed positively; (3) the underlying force of trade increasing the skill premium is higher foreign production efficiency rather than reductions in the trade costs. An application to the U.S. and China reveals that for the U.S., (1) trade with China explains more than half of the decline in manufacturing share; (2) trade and technical change together reallocate 1.6% of skilled workers out of the shrinking manufacturing sector, but by only 0.2% for unskilled workers.

Presented at: Midwest International Trade Spring Meetings (2016), Taipei International Conference on Growth, Trade and Dynamics (2016)