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Capital-Skill Complementarity and the Skill Premium in a Quantitative Model of Trade

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  • Fernando Parro

Abstract

Technological change has reduced the relative price of capital goods. Reductions in trade costs make it cheaper to import capital goods. With capital-skill complementarity, both can increase the skill premium. I construct a general-equilibrium trade model with capital-skill complementarity to study the impact of changing worldwide trade costs and technologies on the skill premium. The impacts of trade costs and technical change are comparable, especially in developing countries, and much larger than Stolper-Samuelson effects. I find that both skilled and unskilled labor gain from trade, and that larger gains from trade are associated with larger increases in the skill premium. (JEL E22, F11, F16, J24, O33)

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Macroeconomics.

Volume (Year): 5 (2013)
Issue (Month): 2 (April)
Pages: 72-117

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Handle: RePEc:aea:aejmac:v:5:y:2013:i:2:p:72-117

Note: DOI: 10.1257/mac.5.2.72
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  1. Pablo Acosta & Gabriel V. Montes-Rojas, 2008. "Trade Reform and Inequality: The Case of Mexico and Argentina in the 1990s," The World Economy, Wiley Blackwell, vol. 31(6), pages 763-780, 06.
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Cited by:
  1. Michael Waugh & Ina Simonovska, 2010. "The Elasticity of Trade: Estimates and Evidence," 2010 Meeting Papers 637, Society for Economic Dynamics.
  2. Costinot, Arnaud & Rodriguez-Clare, Andres, 2013. "Trade Theory with Numbers: Quantifying the Consequences of Globalization," CEPR Discussion Papers 9398, C.E.P.R. Discussion Papers.
  3. Ariel Burstein & Jonathan Vogel, 2011. "Factor Prices and International Trade: A Unifying Perspective," NBER Working Papers 16904, National Bureau of Economic Research, Inc.
  4. Trevor Tombe, 2014. "The Missing Food Problem," Working Papers 2014-35, Department of Economics, University of Calgary, revised 10 Jun 2014.
  5. Jonathan Eaton & Samuel Kortum, 2012. "Putting Ricardo to Work," Journal of Economic Perspectives, American Economic Association, vol. 26(2), pages 65-90, Spring.
  6. Jonathan Vogel & Javier Cravino & Ariel Burstein, 2011. "Importing Skill-Biased Technology," 2011 Meeting Papers 440, Society for Economic Dynamics.
  7. Pierre-Daniel G. Sarte & Esteban Rossi-Hansberg & Fernando Parro & Lorenzo Caliendo, 2013. "The impact of regional and sectoral productivity changes on the U.S. economy," Working Paper 13-14, Federal Reserve Bank of Richmond.
  8. Lorenzo Caliendo & Fernando Parro, 2012. "Estimates of the Trade and Welfare Effects of NAFTA," NBER Working Papers 18508, National Bureau of Economic Research, Inc.
  9. Thomas Sampson, 2011. "Assignment Reversals: Trade, Skill Allocation and Wage Inequality," CEP Discussion Papers dp1105, Centre for Economic Performance, LSE.

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