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

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  • Afonso, Oscar
  • Gil, Pedro Mazeda

Abstract

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.

Suggested Citation

  • Afonso, Oscar & Gil, Pedro Mazeda, 2013. "Effects of North–South trade on wage inequality and on human-capital accumulation," Economic Modelling, Elsevier, vol. 35(C), pages 481-492.
  • Handle: RePEc:eee:ecmode:v:35:y:2013:i:c:p:481-492
    DOI: 10.1016/j.econmod.2013.07.036
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    Cited by:

    1. Dong, Quan & Bárcena-Ruiz, Juan Carlos, 2015. "Does investment in capacity encourage FDI?," Economic Modelling, Elsevier, vol. 51(C), pages 58-64.
    2. Oscar Afonso & Susana Gabriel & Pedro Mazeda Gil, 2016. "Could immigration explain wage inequality in a skill-biased technological model?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 43(3), pages 559-577, August.
    3. repec:kap:jincot:v:17:y:2017:i:4:d:10.1007_s10842-016-0241-0 is not listed on IDEAS

    More about this item

    Keywords

    North–South trade; Technological knowledge; Human capital; Wage inequality;

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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