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High-income export destinations, quality and wages

Author

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  • Brambilla, Irene
  • Porto, Guido G.

Abstract

This paper establishes a link between the income level of the destination countries and the level of average wages in the exporting country across the world economy. We use cross-country panel data to set up an instrumental variable model of high-income export destinations and wages. We find robust evidence that, worldwide, industries that ship products to high-income destinations do pay higher average wages. Our IV results indicate this is a causal relationship. We also explore the operating mechanisms, and find robust evidence in support of a dual link. First, industries that ship products to high-income destination export higher quality goods (as measured by the average unit value of exports within industries). This is because high-income countries demand high-quality products. Second, the provision of quality is costly and requires more intensive use of higher-wage skilled labor. As a result, the production of higher quality products at the industry level creates a wage premium and conduces to higher average industry wages.

Suggested Citation

  • Brambilla, Irene & Porto, Guido G., 2016. "High-income export destinations, quality and wages," Journal of International Economics, Elsevier, vol. 98(C), pages 21-35.
    • Handle: RePEc:eee:inecon:v:98:y:2016:i:c:p:21-35
    DOI: 10.1016/j.jinteco.2015.09.004
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