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The effects of factor and sector biased technical change revisited

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  • Robert Stehrer

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Abstract

In the trade-technology-wage debate, the effects of the various forms of technical progress on relative factor prices have been addressed in a number of contributions over the past decade. However, the existing literature is far from conclusive. The various contributions have either relied on specific assumptions, such as Leontief technologies or Cobb-Douglas demand, that have been decisive for the respective conclusions, or they used a more general framework, arriving at ambiguous results in many cases. In this paper we analyse a general equilibrium framework with CES production and CES demand functions, which allows for any discrete number of sectors and countries integrated via trade flows. Technologies are country- and sector-specific and endowment structures differ across countries. The necessary and sufficient conditions under which the relative wage rates are rising or falling in the domestic and foreign economies are derived. This is done for various types of factor- and sector-biased technical change taking place in a particular sector in either the home or foreign country. The conditions - depending on the relative skill intensity of the innovating sector, the elasticities of substitution in demand and supply, the relative factor endowment and the prevailing (equilibrium) relative wage rate - allow for straightforward economic interpretations. This permits to solve the cases classified as ambiguous in the existing literature and provides clear-cut conditions which are important for modelling and empirical research. Furthermore, the results are interpreted with respect to recent empirical studies where special emphasis is given to the sector-biased versus factor-biased hypothesis.
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Suggested Citation

  • Robert Stehrer, 2010. "The effects of factor and sector biased technical change revisited," Economic Change and Restructuring, Springer, vol. 43(1), pages 65-94, February.
  • Handle: RePEc:kap:ecopln:v:43:y:2010:i:1:p:65-94
    DOI: 10.1007/s10644-009-9078-4
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    References listed on IDEAS

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    1. Robert Stehrer & Julia Wörz, 2003. "Technological convergence and trade patterns," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 139(2), pages 191-219, June.
    2. Daron Acemoglu, 2002. "Directed Technical Change," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 781-809.
    3. H. Uzawa, 1961. "Neutral Inventions and the Stability of Growth Equilibrium," Review of Economic Studies, Oxford University Press, vol. 28(2), pages 117-124.
    4. Rudiger Dornbusch & Stanley Fischer & Paul A. Samuelson, 1980. "Heckscher-Ohlin Trade Theory with a Continuum of Goods," The Quarterly Journal of Economics, Oxford University Press, vol. 95(2), pages 203-224.
    5. Davis, Donald R., 1998. "Technology, unemployment, and relative wages in a global economy," European Economic Review, Elsevier, vol. 42(9), pages 1613-1633, November.
    6. Dornbusch, Rudiger & Fischer, Stanley & Samuelson, Paul A, 1977. "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods," American Economic Review, American Economic Association, vol. 67(5), pages 823-839, December.
    7. Ronald W. Jones, 1965. "The Structure of Simple General Equilibrium Models," Journal of Political Economy, University of Chicago Press, vol. 73, pages 557-557.
    8. Landesmann, Michael A. & Stehrer, Robert, 2001. "Convergence patterns and switchovers in comparative advantage," Structural Change and Economic Dynamics, Elsevier, vol. 12(4), pages 399-423, December.
    9. Xu, Bin, 2001. "Factor bias, sector bias, and the effects of technical progress on relative factor prices," Journal of International Economics, Elsevier, vol. 54(1), pages 5-25, June.
    10. Krugman, Paul R., 2000. "Technology, trade and factor prices," Journal of International Economics, Elsevier, vol. 50(1), pages 51-71, February.
    11. Findlay, Ronald & Jones, Ronald, 2000. "Factor bias and technical progress," Economics Letters, Elsevier, vol. 68(3), pages 303-308, September.
    12. John Romalis, 2004. "Factor Proportions and the Structure of Commodity Trade," American Economic Review, American Economic Association, vol. 94(1), pages 67-97, March.
    13. J. Peter Neary, 2002. "Globalisation and market structure," Working Papers 200220, School of Economics, University College Dublin.
    14. Trefler, Daniel, 1993. "International Factor Price Differences: Leontief Was Right!," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 961-987, December.
    15. Haskel, Jonathan E. & Slaughter, Matthew J., 2002. "Does the sector bias of skill-biased technical change explain changing skill premia?," European Economic Review, Elsevier, vol. 46(10), pages 1757-1783, December.
    16. Zhu, Susan Chun & Trefler, Daniel, 2005. "Trade and inequality in developing countries: a general equilibrium analysis," Journal of International Economics, Elsevier, vol. 65(1), pages 21-48, January.
    17. Robert Feenstra & Gordon Hanson, 2001. "Global Production Sharing and Rising Inequality: A Survey of Trade and Wages," NBER Working Papers 8372, National Bureau of Economic Research, Inc.
    18. 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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    Cited by:

    1. Eva Katalin Polgar & Julia Woerz, 2011. "Trade With Central and Eastern Europe: Is It Really a Threat to Wages in the West?," DANUBE: Law and Economics Review, European Association Comenius - EACO, issue 1, pages 1-31, March.
    2. Thomas Brasch, 2016. "Identifying the sector bias of technical change," Empirical Economics, Springer, vol. 50(2), pages 595-621, March.
    3. Thomas von Brasch, 2015. "Indentifying the sector bias of technical change," Discussion Papers 795, Statistics Norway, Research Department.

    More about this item

    Keywords

    Factor prices; Multisector and multicountry model; Technical change; Trade; C62; C68; F16; O33;

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • 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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