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A Schumpeterian Model of Protection and Relative Wages

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  • Paul Segerstrom
  • Elias Dinopoulos

Abstract

This paper presents a dynamic general equilibrium model of R&D-based trade between two structurally identical countries in which both innovation and skill acquisition rates are endogenously determined. Trade liberalization increases R&D investment and the rate of technological change. It also reduces the relative wage of unskilled workers and results in skill upgrading within each industry when R&D is the skilled-labor intensive activity relative to manufacturing of final products. Time-series evidence from the United States and simulation analysis support the empirical relevance of the model, which offers a North-North trade explanation for increasing wage inequality.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.89.3.450
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 89 (1999)
Issue (Month): 3 (June)
Pages: 450-472

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Handle: RePEc:aea:aecrev:v:89:y:1999:i:3:p:450-472

Note: DOI: 10.1257/aer.89.3.450
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References

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  1. Luis A. Rivera-Batiz & Paul M. Romer, 1991. "International Trade with Endogenous Technological Change," NBER Working Papers 3594, National Bureau of Economic Research, Inc.
  2. Stephen Nickell & D Nicolitsas, 1994. "Wages," CEP Discussion Papers dp0219, Centre for Economic Performance, LSE.
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  8. Davis, Donald R., 1998. "Technology, unemployment, and relative wages in a global economy," European Economic Review, Elsevier, vol. 42(9), pages 1613-1633, November.
  9. repec:fth:coluec:761 is not listed on IDEAS
  10. George E. Johnson, 1997. "Changes in Earnings Inequality: The Role of Demand Shifts," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 41-54, Spring.
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  14. Borsook, I., 1987. "Earnings, ability and international trade," Journal of International Economics, Elsevier, vol. 22(3-4), pages 281-295, May.
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  17. Jeffrey D. Sachs & Howard J. Shatz, 1994. "Trade and Jobs in Manufacturing," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(1), pages 1-84.
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