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11 - Trade and Labor-Market Outcomes
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- By Elhanan Helpman, Harvard University, Oleg Itskhoki, Princeton University, Stephen Redding, Princeton University
- Edited by Daron Acemoglu, Massachusetts Institute of Technology, Manuel Arellano, Eddie Dekel
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- Book:
- Advances in Economics and Econometrics
- Published online:
- 05 May 2013
- Print publication:
- 13 May 2013, pp 459-502
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Summary
Introduction
For understanding the causes and consequences of international trade, recent research increasingly focuses on individual firms. Although this research emphasizes reallocations of resources across heterogeneous firms, it typically assumes frictionless labor markets in which all workers are fully employed for a common wage. In reality, labor markets feature both unemployment and wage inequality, and labor-market institutions are thought to have a prominent role in propagating the impact of external shocks. In this chapter, we draw on recent research in Helpman and Itskhoki (2010) and Helpman, Itskhoki, and Redding (2010) to discuss interdependence across countries.
This framework incorporates a number of features of product and labor markets. Firms are heterogeneous in productivity, which generates differences in revenue across firms. There are search and matching frictions in the labor market, which generate equilibrium unemployment and give rise to multilateral bargaining between the firms and their workers. Although workers are ex-ante homogeneous, they draw a match-specific ability when matched with a firm, which is not directly observed by either the firm or the worker. Firms, however, can invest resources in screening their workers to obtain information about ability. Larger, more-productive firms screen workers more intensively to exclude those with low ability. As a result, they have workforces of higher average ability and they pay higher wages. These differences in firm characteristics are systematically related to export participation. Exporters are larger and more productive than nonexporters; they screen workers more intensively; and they pay higher wages in comparison to firms with similar productivity that do not export.
5 - The economics of isolation and distance
- Edited by Roman Grynberg
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- Book:
- WTO at the Margins
- Published online:
- 05 May 2010
- Print publication:
- 14 December 2006, pp 145-163
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Summary
A recent programme of research at the Centre for Economic Performance at the London School of Economics addresses the role of geography in determining trade flows, the location of economic activity, and the extent of income differentials between countries. Although not directed especially at the problems faced by small or isolated economies, the central issues researched are the interactions between scale and proximity. There are benefits from being large and from being close to centres of economic activity, and the research seeks to understand these benefits, assess their magnitude, and evaluate the rate at which they fall off with distance from the centre. The purpose of this chapter is to draw out some of the implications of this research for small and isolated economies that are deprived of these benefits.
The point of departure is to pose the question, why do isolation and distance matter for economic performance? There are several main considerations. The first is simply that having good access to markets is valuable for firms. The access can derive from two sources: one is proximity to other countries that can bring good access to export markets, and the other is domestic scale, i.e. the extent to which the home market can provide an alternative to exports. Countries that are both remote and small forgo both these sources of market access. The second consideration is access to suppliers of intermediate and capital goods.