In recent years many economists have analyzed whether international trade has contributed to rising U.S. wage inequality by changing relative product prices. In this paper I survey and synthesize the findings of these “product-price” studies.
The theoretical framework guiding this research is the Stolper-Samuelson (SS) theorem linking product-price changes to factor-price changes. The research discussed in this paper constitutes the first large body of empirical work applying the SS theorem to the data. Before these studies there was relatively little empirical research on the SS theorem. Deardorffs (1984) chapter in the Handbook of International Economics entitled “Testing Trade Theories and Predicting Trade Flows” does not cite a single empirical study of it. And in a famous book commemorating the 50th anniversary of the landmark paper by Stolper and Samuelson (Deardorff and Stern (1994)), of the ten essays reprinted as “seminal contributions to the Stolper-Samuelson literature” (p. 5) only one is empirical (Magee (1980)). credit
My survey and synthesis of the product-price studies has three parts. First, borrowing language from Deardorff (1994) I lay out several theoretical statements of the SS theorem to preview some of the empirical issues involved in applying it to data.
Second, I survey the “product-price” studies on rising U.S. wage inequality. In chronological order I cover the following papers: Bhagwati (1991), Lawrence and Slaughter (1993), Sachs and Shatz (1994), Feenstra and Hanson (1995), Leamer (1996), Baldwin and Cain (1997), Krueger (1997), Feenstra and Hanson (1997), and Harrigan and Balaban (1997). Together these nine studies demonstrate how the methodology has evolved. By surveying these papers chronologically I can relate each study to those preceding it.