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International Trade, Productivity Growth, Education and the Wage Differential: A Case Study of Taiwan

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Abstract

The cause of changes in the wage differential between skilled and unskilled labor has been an important subject of debate for several decades. International trade and productivity growth are two main causes that have been suggested from large country studies. Recent research proposes that education is another influence. All three causes have been significantly associated with Taiwan’s economic development. This paper attempts to contribute to the literature by investigating the wage differential in Taiwan, a small open economy. A Dynamic Intertemporal General Equilibrium (DIGE) model is used to perform theoretical simulation. An Error Correction Model (ECM) incorporating both short- and long-run effects is employed to accomplish the empirical examination. That education and international trade are important causes of changes in the wage differential is substantiated by Taiwanese data. Productivity growth has a significant influence on the wage differential in the short run but not in the long run.

Suggested Citation

  • Hsiao-chuan Chang, 2003. "International Trade, Productivity Growth, Education and the Wage Differential: A Case Study of Taiwan," Journal of Applied Economics, Universidad del CEMA, vol. 6, pages 25-48, May.
  • Handle: RePEc:cem:jaecon:v:6:y:2003:n:1:p:25-48
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    References listed on IDEAS

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    1. Edward E. Leamer, 1992. "Testing Trade Theory," NBER Working Papers 3957, National Bureau of Economic Research, Inc.
    2. Chen, Been-Lon & Hsu, Mei, 2001. "Time-Series Wage Differential in Taiwan: The Role of International Trade," Review of Development Economics, Wiley Blackwell, vol. 5(2), pages 336-354, June.
    3. Hakura, D. & Deardorff, A.V., 1993. "Trade and Wages: What Are the Questions?," Working Papers 341, Research Seminar in International Economics, University of Michigan.
    4. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555 Elsevier.
    5. Wood, Adrian, 1995. "North-South Trade, Employment and Inequality: Changing Fortunes in a Skill-Driven World," OUP Catalogue, Oxford University Press, number 9780198290155.
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    More about this item

    Keywords

    wage differential; dynamic intertemporal general equilibrium model; error correction model;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • F10 - International Economics - - Trade - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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