Essays on Globalization and Structural Change

Abstract

In this dissertation I explore the relationship between structural change and globalization. In particular, I focus on the impact of international trade on sectoral labor markets. In Chapter 1, by using a growth accounting framework I provide quantitative estimates of the impact of international trade on sectoral employment shares, in the presence of structural change. I find that in the USA between 1995 and 2014, international trade accounts for 16 percent of the decline in the goods sector employment share. Across countries, the impact of trade on the goods sector employment share is heterogeneous in sign and magnitudes, and is correlated with comparative advantage in the goods sector. I then introduce a Ricardian model of trade with structural change, to shed light on the comparative advantage mechanism. In the data and in the model, international trade mitigates structural change forces in countries with a comparative advantage in the goods sector, while it magnifies structural change forces in countries with a comparative advantage in the service sector. The framework and results I present suggest that trade policy has a limited role in "bringing the manufacturing jobs back". In Chapter 2 I first document that changes in sectoral relative wages have been heterogeneous across countries and then show that these changes in sectoral relative wages matter for understanding employment reallocation. I then ask: why do sectoral relative wages evolve over time? I argue that a likely explanation is the existence of idiosyncratic sectoral labor demand shocks in the context of employment reallocation frictions. I argue that aggregate trade integration con generate such shifts. The intuition is simple: trade liberalization tends to increase labor demand in sectors in which the country has a comparative advantage, and to decrease labor demand in sectors in the rest of sectors. If labor cannot fully reallocate after such shocks, wages tend to adjust: relative wages tend to increase in sectors in which the country has a comparative advantage and tend to shrink in the rest of the economy. Trade integration thus impacts sectoral relative wages and that this impact varies across countries. I introduce a model of international trade with labor market frictions and show that countries with a comparative advantage in the goods (service) sectors tend to experience increasing relative wages in the goods (service) sector. Using the Revealed Comparative Advantage Index, I confirm this relationship in the data. Employment reallocation frictions thus shed light on the empirical relevance of the Ricardian model of international trade.