The high trade costs inferred from gravity are rarely used in thewide class of trade models. Two related problems … explain this omis-sion of a key explanatory variable. First, national seller and buyer re-sponses to trade costs depend on … their incidence rather than on the fullcost. Second, the high dimensionality of bilateral trade costs requiresaggregation …

An interesting puzzle is that trade liberalization in the 1980s and 1990s has been associated with a sharp increase in … the skill premium in both developed and developing countries.This is in contrast with neoclassical theory, according to … which trade should increase therelative return of the relatively abundant factor. We develop a simple model of trade …