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Trade, Technology Adoption and Wage Inequalities: Theory and Evidence

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  • Maria Bas

Abstract

This paper develops a model of trade that features heterogeneous firms, technology choice and different types of skilled labor in a general equilibrium framework. Its main contribution is to explain the impact of trade integration on technology adoption and wage inequalities. It also provides empirical evidence to support the model's predictions using plant-level panel data from Chile's manufacturing sector (1990-1999). The theoretical framework offers a possible explanation of the puzzling increase in skill premium in the developing countries. The key mechanism is found in the effects of trade policy on the number of new firms upgrading technology and on the skill-intensity of labor. Trade liberalization pushes up export revenues, raising the probability that the most productive exporters will upgrade their technology. These firms then increase their relative demand for skilled labor, 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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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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

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  1. 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.
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  8. Verhoogen, Eric, 2007. "Trade, Quality Upgrading and Wage Inequality in the Mexican Manufacturing Sector," IZA Discussion Papers 2913, Institute for the Study of Labor (IZA).
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  14. Yeaple, Stephen Ross, 2005. "A simple model of firm heterogeneity, international trade, and wages," Journal of International Economics, Elsevier, Elsevier, vol. 65(1), pages 1-20, January.
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  16. 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, American Economic Association, vol. 87(4), pages 545-64, September.
  17. Thoenig, Mathias & Verdier, Thierry, 2002. "A Theory of Defensive Skill-based Innovation and Globalization," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3416, C.E.P.R. Discussion Papers.
  18. 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, MIT Press, vol. 114(3), pages 907-940, August.
  19. Elhanan Helpman & Oleg Itskhoki & Stephen Redding, 2010. "Inequality and Unemployment in a Global Economy," Econometrica, Econometric Society, Econometric Society, vol. 78(4), pages 1239-1283, 07.
  20. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jenson & Samuel Kortum, 2000. "Plants and Productivity in International Trade," NBER Working Papers 7688, National Bureau of Economic Research, Inc.
  21. Ekholm, Karolina & Ulltveit-Moe, Karen-Helene, 2001. "Relative Wages and Trade-Induced Changes in Technology," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2677, C.E.P.R. Discussion Papers.
  22. 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.
  23. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 317-341.
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Cited by:
  1. James E. Rauch, 2007. "Development Through Synergistic Reform," NBER Working Papers 13170, National Bureau of Economic Research, Inc.
  2. Swati Dhingra, 2011. "Trading Away Wide Brands for Cheap Brands," CEP Discussion Papers, Centre for Economic Performance, LSE dp1103, Centre for Economic Performance, LSE.
  3. Ferguson, Shon, 2012. "Cross-Industry Heterogeneity in Export Participation: The Role of Scale Economies in R&D," Working Paper Series, Research Institute of Industrial Economics 930, Research Institute of Industrial Economics.
  4. Marco de Pinto & Jochen Michaelis, 2011. "International Trade and Unemployment - the Worker-Selection Effect," MAGKS Papers on Economics, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) 201127, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

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