International Trade and Income Differences

International Trade and Income Inequality∗

We propose a theory that explains why international trade can widen a wage gap between top income-earners and others. In the basic model, we consider two symmetric countries in which individuals with different abilities work either as knowledge workers, who develop products produced in a differentiated-good sector, or as production workers, who engage in actual production processes. In equilibr...

National Income Distributions and International Trade Flows

In this paper we model the pattern of international trade, and technological innovation and imitation between industrialized and developing regions, when preferences are nonhomothetic. By and large, models of the dynamics of North-South trade impose the assumption of unit income elasticity for all consumption goods. We relax this assumption and incorporate the insight from Engel’s Law: The budg...

A Difference-In-Differences (DID) Analysis Of Financial Integration And International Trade In ASEAN+5

Intangible Capital and International Income Differences

I add intangible capital to a variant of the neoclassical growth model and study the implications for cross-country income differences. I calibrate the parameters associated with intangible capital by using new estimates of investment in intangibles by Corrado et al. (2006). When intangible capital is added to the model, the TFP elasticity of output increases from 2.14 to 2.64. This finding imp...

Understanding International Differences in Trade and Financial Integration

Trade and financial integration introduce cost pressures to firms with technology disadvantages. To avoid specialization and to mitigate the impact of integration on the return to the internationally immobile factor labor, countries introduce distortions to goods’ and capital flows. The degree of interventions depends on the size and cross-industry dispertion of technology differences, as well ...