Book Description

The distributional effects of globalization on income have been one of the most important issues in international trade. Whether globalization is one of the explanations of the increasing wage inequality in both developing and developed countries or not has been a debate since 1990s. My dissertation investigates this topic from three aspects: who does trade affect between-group inequality through firm training, market potential and cross-country income, openness and within-group wage inequality. The first chapter incorporates firm-specific training into a recent framework of search model developed by Helpman, Itskhoki and Redding (2010) with heterogeneous firms and two types of workers. More productive firms hire workers with higher average learning ability, invest more on training both skilled and unskilled workers, hire relatively more skilled workers and pay relatively higher wages to skilled workers. Exporting increases wage and training received by workers in a firm with given productivity. For each type of worker, training inequality and wage inequality moves together after opening to trade. Empirical evidence based on firm- and worker-level data is also provided to support model predictions. The second chapter challenges the traditional belief that the US labor productivity advantage in the late 19th century should be attributed to its large domestic market. We assess whether a more general measure of "market access" mattered for the US position in the cross-country distribution of income per capita between 1900 and 1910. After constructing market access measures for 25 countries based on a general equilibrium model of production and trade, the US does not have an overall lead in market access matching its rank in the income distribution. France, Germany and the UK appear to have larger domestic markets than the US. Still, market access does correlate positively with income per capita in the broader sample. We then simulate a general equilibrium trade model with trade costs and provide a calculation of the welfare gains from removing international borders. The largest European countries could not have closed their gap with the US with higher market potential. On the other hand, many small countries could have done so. While market access may not have been crucial for explaining US success, it was an important determinant of real incomes for the most advanced small open-economies. The third chapter provides evidence on the relationship between within-group wage inequality and the degree of openness. One of the key predictions from the theoretical model in Helpman, Itskhoki and Redding (2010) is that there is a non-monotonic relationship between within-group wage inequality and openness, depending on the fraction of exporting firms. In this chapter, I propose a way to test this prediction by constructing a panel data including around 50 manufacturing industries over 34 years. The residuals from Mincer regression is used to calculate within-group wage inequality index. The preliminary results are consistent with these theoretical predictions.