Monday, July 5, 2010

Trade and wages

After looking over Krugman's Trade and Wages Reconsidered the only thought that struck me was this:

How do we reconcile the data with static general equilibrium models when the data generating process is neither static nor in equilibrium at the time it is recorded?

I had expected a paper which would have stated the following:
In the following model, volume of trade is endogenous. If the elasticity of substitution between skilled and unskilled labor is y and the volume of trade exceeds a, then wage inequality will be b.

I imagine such a proposition is out there somewhere but I'm not a follower of trade theory enough to go out looking for it and perhaps I should.

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