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Trade, wages and skill accumulation in the emerging giants

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  • Harris, Richard G.
  • Robertson, Peter E.

Abstract

Concerns over rising inequality have threatened to slow the process of trade liberalization in emerging economies, such as China and India. But even if trade liberalization raises inequality, these effects may be short lived and associated with important dynamic effects such as capital and skill accumulation. Using a simple dynamic open economy model we show that trade liberalization can induce substantial human capital accumulation, and that the transition path for the skill premium can be non-monotonic. We then consider a higher dimensional version of the model which is calibrated to data for China and India. In both cases trade liberalization generates a jump in the skill premium on impact, and a fall in the long run. It also generates strong wage growth for both skilled and unskilled labor and substantial accumulation of skilled labor.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 89 (2013)
Issue (Month): 2 ()
Pages: 407-421

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Handle: RePEc:eee:inecon:v:89:y:2013:i:2:p:407-421

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Web page: http://www.elsevier.com/locate/inca/505552

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Keywords: Economic growth; International trade; Skill premium; Human capital; Wage inequality;

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Cited by:
  1. Rod Tyers, 2013. "International Effects of China's Rise and Transition: Neoclassical and Keynesian Perspectives," CAMA Working Papers 2013-44, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  2. Peter E Robertson & Jessica Y Xu, 2010. "In China's Wake: Has Asia Gained From China's Growth?," Economics Discussion / Working Papers 10-15, The University of Western Australia, Department of Economics.

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