Score contribution per author:
α: calibrated so average coauthorship-adjusted count equals average raw count
Why trade liberalizations increase the skill premium? To explain this empirical evidence that is in contrast with the conventional theory of Heckscher-Ohlin, I build up a general equilibrium micro-founded heterogeneous-firm model of international trade where firms make decisions on their division of labor, and firms’ skill-intensities are endogenously determined. I show why the exporters are generally more productive and skill intensive and how trade cost reductions induce more productive firms to choose a higher degree of labor specialization, become more skill intensive and start to export. I further demonstrate how such internal horizontal organizational changes, after a trade cost reduction, can directly increase aggregate skill intensity and the relative demand for skilled workers, resulting in higher skill premium in a general equilibrium setting. Lastly, I calibrate this model to the Mexican data to quantify the rise in the skill premium in the period of its trade liberalization 1985~1993.