The distributional effects of trade: Theory and evidence from the United States
In this seminar, Dr Xavier Jaravel will discuss whether the gains from trade are unequally distributed in US society.
Based on a joint paper with Kirill Borusyak from Harvard University, this seminar presents new evidence on the distributional effects of trade on education groups in the US through both consumer prices (expenditure channel) and wages (earnings channel). The analysis, guided by a simple quantitative trade model, leverages linked data sets that cover the entire US economy and include detailed spending data on consumer packaged goods and automobiles.
First, the speaker will show that the expenditure channel is distributionally neutral due to offsetting forces. College graduates spend more on services, which are largely non-traded. However, their spending on goods is skewed towards industries, firms and brands with higher import content.
Second, on the earnings side, findings show that college graduates work in industries that are less exposed to import competition, export more, are more income-elastic, and use fewer imported inputs. The first three forces cause trade liberalisations to favour college graduates; the fourth has the opposite effect.
Finally, the speaker will combine and quantify the expenditure and earnings channels using the model. A 10% reduction of all import and export barriers generates a modest increase in inequality between education groups, primarily due to the earnings channel. Welfare gains are 16% higher for college graduates, whose real income increases by 2.02% compared to 1.74% for individuals without a college degree. Reductions of import barriers with China have qualitatively similar implications.