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Capital-Skill Complementarity and the Skill Premium in a Quantitative Model of Trade

  • Fernando Parro

Technological change has reduced the relative price of capital goods. Reductions in trade costs make it cheaper to import capital goods. With capital-skill complementarity, both can increase the skill premium. I construct a general-equilibrium trade model with capital-skill complementarity to study the impact of changing worldwide trade costs and technologies on the skill premium. The impacts of trade costs and technical change are comparable, especially in developing countries, and much larger than Stolper-Samuelson effects. I find that both skilled and unskilled labor gain from trade, and that larger gains from trade are associated with larger increases in the skill premium. (JEL E22, F11, F16, J24, O33)

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Article provided by American Economic Association in its journal American Economic Journal: Macroeconomics.

Volume (Year): 5 (2013)
Issue (Month): 2 (April)
Pages: 72-117

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Handle: RePEc:aea:aejmac:v:5:y:2013:i:2:p:72-117
Note: DOI: 10.1257/mac.5.2.72
Contact details of provider: Web page: https://www.aeaweb.org/aej-macro
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  1. Pablo Acosta & Gabriel V. Montes-Rojas, 2008. "Trade Reform and Inequality: The Case of Mexico and Argentina in the 1990s," The World Economy, Wiley Blackwell, vol. 31(6), pages 763-780, 06.
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