Journal Article

Trade, Firms, and Wages: Theory and Evidence

Mary Amiti and Donald R. Davis

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 79, issue 1, pages 1-36
Published in print January 2012 | ISSN: 0034-6527
Published online August 2011 | e-ISSN: 1467-937X | DOI:
Trade, Firms, and Wages: Theory and Evidence

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How does trade liberalization affect wages? This is the first paper to consider in theory and data how the impact of final and intermediate input tariff cuts on workers' wages varies with the global engagement of their firm. Our model predicts that a fall in output tariffs lowers wages at import-competing firms but boosts wages at exporting firms. Similarly, a fall in input tariffs raises wages at import-using firms relative to those at firms that only source inputs locally. Using highly detailed Indonesian manufacturing census data for the period 1991–2000, we find considerable support for the model's predictions.

Keywords: Input tariffs; Output tariffs; Firm heterogeneity; Trade liberalization; F10; F12; F13; F14

Journal Article.  14744 words.  Illustrated.

Subjects: International Trade

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