Comparing advantages: US trade with the rest of the world, 1968~2008

Calibrating a stylized version of the Dornbusch-Fischer-Samuelson model, this paper finds that relative to a cohort of 97 trading partners, the US capital stock, labor force, and nominal GDP per capita decreased, while the level of technology embodied in its output increased. These observed dynamics suggest a shift in comparative advantage that, coupled with increased production at the extensive and intensive margins, yields an expectation of labor market churning. Grouping trading partners by World Bank income classifications reveals that observed changes for low and lower middle income cohorts resulted in more pronounced shifts in comparative advantage. Examining employment and earnings in US manufacturing industries, a dynamic regression model reveals that increased import penetration has significant negative effects on production worker employment and wages, while increases in exports has significant positive effects on production worker employment. Variation in labor market outcomes is found across income classifications, as well as industries categorized by trade orientation.