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Trade liberalisation, skill-biased technical change and wages in developing countries: a model with heterogeneous firms

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  • Mauro Caselli

Abstract

This paper analyses the effects of trade liberalisation and technical change on real and relative wages.� It builds a model with monopolistic competition, heterogeneous firms and two countries, North and South, and solves it numerically.� Skill-biased technical change, caused by decreases in the price of imported equipment as a result of reduced trade costs or falls in its world price, tends to increase the relative wages of skilled workers.� This increase in the skill premium can occur even in skill-scarce developing countries, as has often been observed in reality, even though Stolper-Samuelson effects pull the other way.� What drives the rise in skilled wages when imported equipment becomes cheaper is the rise in demand for skilled workers in the most productive firms in each sector.� Whether or not real unskilled wages increase absolutely after trade liberalisation appears to depend on whether trade costs are ad valorem or per-unit.

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Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number CSAE WPS/2010-27.

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Date of creation: 01 Aug 2010
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Handle: RePEc:oxf:wpaper:csae-wps/2010-27

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Keywords: Trade liberalisation; skill-biased technical change; wage inequality; real wages; equipment-skill complementarity;

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  12. Alberto Behar, 2009. "Directed technical change, the elasticity of substitution and wage inequality in developing countries," Economics Series Working Papers 467, University of Oxford, Department of Economics.
  13. Mauro Caselli, 2010. "Trade, skill-biased technical change and wages in Mexican manufacturing," Economics Series Working Papers CSAE WPS/2010-28, University of Oxford, Department of Economics.
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  16. Daron Acemoglu, 2007. "Introduction to Modern Economic Growth," Levine's Bibliography 122247000000001721, UCLA Department of Economics.
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