Trade Costs, Quality, and The Skill Premium

Bekkers, Eddy Henricus; Francois, Joseph; Manchin, Miriam (2016). Trade Costs, Quality, and The Skill Premium. Canadian Journal of Economics, 49(3), pp. 1153-1178. Bern: Canadian economics association

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We develop a monopolistic competition model with nonhomothetic factor input bundles where increasing quality requires increasing use of skilled workers. As a result more skill abundant countries export higher quality, higher priced goods. Using a multicountry dataset we test and confirm the findings in Schott (2004) of a positive effect of skill abundance on unit values identified with US data. We extend the core model with per unit trade costs leading to the Washington-apples effect that goods shipped over larger distance are of higher quality. The combination of high-quality goods being relatively skill intensive with the Washington-apples effect implies that countries at a larger distance from their trading partners display a higher skill premium. Simulating our model we find that a doubling of distance of a country relative to all its trading partners raises the skill premium in a country by about 2.3 percent.

Item Type:

Journal Article (Original Article)

Division/Institute:

03 Faculty of Business, Economics and Social Sciences > Other Institutions > Teaching Staff, Faculty of Business, Economics and Social Sciences
02 Faculty of Law > Department of Economic Law > World Trade Institute
10 Strategic Research Centers > World Trade Institute

02 Faculty of Law > Department of Economic Law > NCCR International Trade Regulation

Graduate School:

Graduate School of Economic Globalisation and Integration

UniBE Contributor:

Bekkers, Eddy Henricus and Francois, Joseph

Subjects:

300 Social sciences, sociology & anthropology > 340 Law
300 Social sciences, sociology & anthropology > 380 Commerce, communications & transportation
300 Social sciences, sociology & anthropology > 330 Economics

ISSN:

1540-5982

Publisher:

Canadian economics association

Language:

English

Submitter:

Rebecca Anne Gilgen

Date Deposited:

17 Jun 2016 14:11

Last Modified:

09 Oct 2019 14:35

Related URLs:

JEL Classification:

F12, F14

BORIS DOI:

10.7892/boris.83764

URI:

https://boris.unibe.ch/id/eprint/83764

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