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Trade, Technology Adoption and Wage Inequalities: Theory and Evidence

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Author Info
Maria Bas
Abstract

This paper develops a model of trade that features heterogeneous firms, technology choice anddifferent types of skilled labor in a general equilibrium framework. Its main contribution is to explainthe impact of trade integration on technology adoption and wage inequalities. It also providesempirical evidence to support the model's predictions using plant-level panel data from Chile'smanufacturing sector (1990-1999). The theoretical framework offers a possible explanation of thepuzzling increase in skill premium in the developing countries. The key mechanism is found in theeffects of trade policy on the number of new firms upgrading technology and on the skill-intensity oflabor. Trade liberalization pushes up export revenues, raising the probability that the most productiveexporters will upgrade their technology. These firms then increase their relative demand for skilledlabor, thereby raising inequalities.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0902.

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Date of creation: Dec 2008
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Handle: RePEc:cep:cepdps:dp0902

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Related research
Keywords: Firm heterogeneity; trade reforms; technology adoption; skill premium; plant panel data;

Find related papers by JEL classification:
F10 - International Economics - - Trade - - - General
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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  1. Eric A. Verhoogen, 2008. "Trade, Quality Upgrading, and Wage Inequality in the Mexican Manufacturing Sector," The Quarterly Journal of Economics, MIT Press, vol. 123(2), pages 489-530, 05. [Downloadable!] (restricted)
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  2. Bernard, Andrew B. & Bradford Jensen, J., 1999. "Exceptional exporter performance: cause, effect, or both?," Journal of International Economics, Elsevier, vol. 47(1), pages 1-25, February. [Downloadable!] (restricted)
    Other versions:
  3. Daron Acemoglu, 2003. "Patterns of Skill Premia," Review of Economic Studies, Blackwell Publishing, vol. 70(2), pages 199-230, 04. [Downloadable!] (restricted)
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  4. Maurin, Eric & Thesmar, David & Thoenig, Mathias, 2002. "Globalization and the demand for skill: An Export Based Channel," CEPR Discussion Papers 3406, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  5. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2003. "Plants and Productivity in International Trade," American Economic Review, American Economic Association, vol. 93(4), pages 1268-1290, September. [Downloadable!]
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  6. Nina Pavcnik, 2000. "What Explains Skill Upgrading in Less Developed Countries?," NBER Working Papers 7846, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-64, September. [Downloadable!] (restricted)
  8. Robert Feenstra & Gordon Hanson, 2001. "Global Production Sharing and Rising Inequality: A Survey of Trade and Wages," NBER Working Papers 8372, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Sanchez-Paramo, Carolina & Schady, Norbert, 2003. "Off and running? Technology, trade and the rising demand for skilled workers in Latin America," Policy Research Working Paper Series 3015, The World Bank. [Downloadable!]
  10. Andrew B. Bernard & Stephen J. Redding & Peter K. Schott, 2007. "Comparative Advantage and Heterogeneous Firms," Review of Economic Studies, Blackwell Publishing, vol. 74(1), pages 31-66, 01. [Downloadable!] (restricted)
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  11. Ekholm, Karolina & Midelfart, Karen Helene, 2005. "Relative wages and trade-induced changes in technology," European Economic Review, Elsevier, vol. 49(6), pages 1637-1663, August. [Downloadable!] (restricted)
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  12. Mathias Thoenig & Thierry Verdier, 2003. "A Theory of Defensive Skill-Biased Innovation and Globalization," American Economic Review, American Economic Association, vol. 93(3), pages 709-728, June. [Downloadable!]
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  13. Hartmut Egger & Udo Kreickemeier, 2007. "Firm Heterogeneity and the Labour Market Effects of Trade Liberalisation," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  14. Yeaple, Stephen Ross, 2005. "A simple model of firm heterogeneity, international trade, and wages," Journal of International Economics, Elsevier, vol. 65(1), pages 1-20, January. [Downloadable!] (restricted)
  15. Choi, E Kwan & Harrigan, James, 2004. "Handbook of International Trade," Staff General Research Papers 11375, Iowa State University, Department of Economics.
  16. Stephen Machin & John Van Reenen, 1998. "Technology and changes in skill structure: evidence from seven OECD countries," IFS Working Papers W98/04, Institute for Fiscal Studies.
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  17. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Blackwell Publishing, vol. 70(2), pages 317-341, 04. [Downloadable!] (restricted)
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  18. Elhanan Helpman & Oleg Itskhoki & Stephen Redding, 2008. "Inequality and Unemployment in a Global Economy," NBER Working Papers 14478, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  19. Sofronis Clerides & Saul Lach & James Tybout, 1996. "Is "Learning-by-Exporting" Important? Micro-Dynamic Evidence from Colombia, Mexico and Morocco," NBER Working Papers 5715, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  20. Robert C. Feenstra & Gordon H. Hanson, 1999. "The Impact Of Outsourcing And High-Technology Capital On Wages: Estimates For The United States, 1979-1990," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 907-940, August. [Downloadable!] (restricted)
  21. Edward Anderson & Paul J. G. Tang & Adrian Wood, 2006. "Globalization, co-operation costs, and wage inequalities," Oxford Economic Papers, Oxford University Press, vol. 58(4), pages 569-595, October. [Downloadable!] (restricted)
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