Simon Galle (BI Norwegian Business School)
In the paper the authors develop a multi-sector gravity model with heterogeneous workers to quantify the aggregate and group-level welfare effects of trade. The model generalizes the specific-factors intuition to a setting with labour reallocation, leads to a parsimonious formula for the group-level welfare effects from trade, and nests the aggregate results in Arkolakis, Costinot and Rodríguez-Clare (2012). The authors estimate the model using the structural relationship between China-shock driven changes in manufacturing employment and average earnings across US groups defined as commuting zones. They find that the China shock increases average welfare but some groups experience losses as high as five times the average gain. Adjusted for plausible measures of inequality aversion, gains in social welfare remain positive and deviate only slightly from those according to the standard aggregation method.
Lecture Hall (A-032)