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- Title
Globalization, Trade Imbalances, and Labor Market Adjustment*.
- Authors
Dix-Carneiro, Rafael; Pessoa, João Paulo; Reyes-Heroles, Ricardo; Traiberman, Sharon
- Abstract
We argue that modeling trade imbalances is crucial for understanding transitional dynamics in response to globalization shocks. We build and estimate a general equilibrium, multicountry, multisector model of trade with two key ingredients: (i) endogenous trade imbalances arising from households' consumption and saving decisions; (ii) labor market frictions across and within sectors. We use our model to perform several empirical exercises. We find that the "China shock" accounted for 28% of the decline in U.S. manufacturing between 2000 and 2014—1.65 times the magnitude predicted from a model imposing balanced trade. A concurrent rise in U.S. service employment led to a negligible aggregate unemployment response. We benchmark our model's predictions for the gains from trade against the popular ACR sufficient-statistics approach. We find that our predictions for the long-run gains from trade and consumption dynamics significantly diverge.
- Subjects
CONSUMPTION (Economics); GLOBALIZATION; CONSTRUCTION cost estimates; BALANCE of trade; LABOR market; EMPLOYMENT agencies; COMPUTABLE general equilibrium models; UNEMPLOYMENT
- Publication
Quarterly Journal of Economics, 2023, Vol 138, Issue 2, p1109
- ISSN
0033-5533
- Publication type
Article
- DOI
10.1093/qje/qjac043