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Trade, technology adoption and wage inequalities: theory and evidence

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  • Maria Bas
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    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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    File URL: http://eprints.lse.ac.uk/28513/
    File Function: Open access version.
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    Bibliographic Info

    Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 28513.

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    Length: 46 pages
    Date of creation: Dec 2008
    Date of revision:
    Handle: RePEc:ehl:lserod:28513

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    Related research

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

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    References

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    1. 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).
    2. Elhanan Helpman & Oleg Itskhoki & Stephen Redding, 2010. "Inequality and Unemployment in a Global Economy," Econometrica, Econometric Society, vol. 78(4), pages 1239-1283, 07.
    3. Daron Acemoglu, 2003. "Patterns of Skill Premia," Review of Economic Studies, Wiley Blackwell, vol. 70(2), pages 199-230, 04.
    4. 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.
    5. Orazio Attanasio & Pinelopi Goldberg & Nina Pavcnik, 2003. "Trade Reforms and Wage Inequiality in Colombia," NBER Working Papers 9830, National Bureau of Economic Research, Inc.
    6. Andrew B. Bernard & Stephen Redding & Peter K. Schott, 2004. "Comparative Advantage and Heterogeneous Firms," NBER Working Papers 10668, National Bureau of Economic Research, Inc.
    7. 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.
    8. 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.
    9. 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.
    10. 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.
    11. Bernard, A., 1997. "Exceptional Exporter Performance: Cause, Effect, or Both?," Working papers 97-21, Massachusetts Institute of Technology (MIT), Department of Economics.
    12. 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.
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    Cited by:
    1. Swati Dhingra, 2011. "Trading Away Wide Brands for Cheap Brands," CEP Discussion Papers dp1103, Centre for Economic Performance, LSE.
    2. Marco de Pinto & Jochen Michaelis, 2011. "International Trade and Unemployment - the Worker-Selection Effect," MAGKS Papers on Economics 201127, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

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