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A Schumpeterian Model of Protection and Relative Wages

  • Paul Segerstrom
  • Elias Dinopoulos

This paper presents a dynamic general equilibrium model of R&D-based trade between two structurally identical countries in which both innovation and skill acquisition rates are endogenously determined. Trade liberalization increases R&D investment and the rate of technological change. It also reduces the relative wage of unskilled workers and results in skill upgrading within each industry when R&D is the skilled-labor intensive activity relative to manufacturing of final products. Time-series evidence from the United States and simulation analysis support the empirical relevance of the model, which offers a North-North trade explanation for increasing wage inequality.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.89.3.450
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 89 (1999)
Issue (Month): 3 (June)
Pages: 450-472

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Handle: RePEc:aea:aecrev:v:89:y:1999:i:3:p:450-472
Note: DOI: 10.1257/aer.89.3.450
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