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Globalization, Trade Imbalances, and Labor Market Adjustment*

Publication ,  Journal Article
Dix-Carneiro, R; Pessoa, JP; Reyes-Heroles, R; Traiberman, S
Published in: Q J Econ
January 2, 2023

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.

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Published In

Q J Econ

DOI

ISSN

0033-5533

Publication Date

January 2, 2023

Start / End Page

qjac043

Related Subject Headings

  • Economics
  • 3803 Economic theory
  • 3802 Econometrics
  • 3801 Applied economics
  • 14 Economics
 

Citation

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ICMJE
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Dix-Carneiro, R., Pessoa, J. P., Reyes-Heroles, R., & Traiberman, S. (2023). Globalization, Trade Imbalances, and Labor Market Adjustment*. Q J Econ, qjac043. https://doi.org/10.1093/qje/qjac043
Dix-Carneiro, R., J. P. Pessoa, R. Reyes-Heroles, and S. Traiberman. “Globalization, Trade Imbalances, and Labor Market Adjustment*.” Q J Econ, January 2, 2023, qjac043. https://doi.org/10.1093/qje/qjac043.
Dix-Carneiro R, Pessoa JP, Reyes-Heroles R, Traiberman S. Globalization, Trade Imbalances, and Labor Market Adjustment*. Q J Econ. 2023 Jan 2;qjac043.
Dix-Carneiro, R., et al. “Globalization, Trade Imbalances, and Labor Market Adjustment*.” Q J Econ, Jan. 2023, p. qjac043. Manual, doi:10.1093/qje/qjac043.
Dix-Carneiro R, Pessoa JP, Reyes-Heroles R, Traiberman S. Globalization, Trade Imbalances, and Labor Market Adjustment*. Q J Econ. 2023 Jan 2;qjac043.
Journal cover image

Published In

Q J Econ

DOI

ISSN

0033-5533

Publication Date

January 2, 2023

Start / End Page

qjac043

Related Subject Headings

  • Economics
  • 3803 Economic theory
  • 3802 Econometrics
  • 3801 Applied economics
  • 14 Economics