Globalization, trade imbalances and inequality

What is the role of trade imbalances for the distributional consequences of globalization? We answer this question through the lens of a quantitative, general equilibrium, multi -country, multi-sector model of trade with four key ingredients: (a) workers with different levels of skills are organized into separate representative households; (b) endogenous trade imbalances arise from households' consumption and saving decisions; (c) production ex-hibits capital-skill complementarity; and (d) labor markets feature both sectoral mobility frictions and non-employment. We conduct a series of counterfactual experiments that il-lustrate the quantitative importance of both trade imbalances and capital-skill complemen-tarity for the dynamics of the skill premium. We show that modeling trade imbalances can lead to stark differences between short-and long-run consequences of globalization shocks for the skill premium. (c) 2022 Elsevier B.V. All rights reserved.