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Effects of North–South trade on wage inequality and on human-capital accumulation

  • Afonso, Oscar
  • Gil, Pedro Mazeda

This paper develops an endogenous growth model with technological knowledge directed towards high- versus low-skilled labour, augmented with North–South international trade of intermediate goods and with human-capital accumulation, to analyse how trade affects wage inequality and the inter-country human-capital gap. Trade is a vehicle for inter-country technological-knowledge diffusion and human-capital accumulation interacts with the intra-country direction of technological knowledge arising from trade. In contrast with the market-size effect, stressed in the skill-biased technological change literature, the operation of the price channel following openness to trade predicts, in line with the recent trends in developed and developing countries, an increasing technological-knowledge bias towards high-skilled human capital. This, in turn, decreases inter-country gaps of technological knowledge and human capital and increases intra-country wage inequality. Also in line with recent empirical evidence, inter-country wage convergence is induced by the trade-opening level effect.

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Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 35 (2013)
Issue (Month): C ()
Pages: 481-492

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Handle: RePEc:eee:ecmode:v:35:y:2013:i:c:p:481-492
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30411

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