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Effects of Economic Development in China on Skill-Biased Technical Change in the US

Author

Listed:
  • Angus Chu

    (University of Liverpool)

  • Guido Cozzi

    (University of St. Gallen)

  • Yuichi Furukawa

    (Chukyo University)

Abstract

In this study, we explore the effects of a change in unskilled labor in China on the direction of innovation in the US by incorporating production offshoring into a North-South model of directed technical change. We find that intellectual property rights (IPRs) and offshoring are different ways for the labor endowment of the South to affect the size of the market for innovations in the North. Absent offshoring and lacking IPRs in the South - as in China in the early 1980s - an increase in Southern unskilled labor should lead to skill-biased technical change. If instead offshoring is present and/or IPRs are better enforced (as in China in more recent times), then a decrease in unskilled labor in the South should lead to skill-biased technical change. Furthermore, an increase in Southern per capita stock of capital reduces offshoring and also leads to skill-biased technical change. Calibrating the model to China-US data, we find that under a moderate elasticity of substitution between skill-intensive and labor-intensive goods, the decrease in unskilled labor and the increase in capital in China can explain about one-third of the recent increase in the skill premium in China through skill-biased technical change in the US. (Copyright: Elsevier)

Suggested Citation

  • Angus Chu & Guido Cozzi & Yuichi Furukawa, 2015. "Effects of Economic Development in China on Skill-Biased Technical Change in the US," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(2), pages 227-242, April.
    • Handle: RePEc:red:issued:13-170
    DOI: 10.1016/j.red.2014.04.001
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    7. Oscar Afonso & Manuela Magalhães, 2021. "The role of intellectual property rights in a directed technical change model," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 2142-2176, April.
    8. Tatsuro Iwaisako & Hitoshi Tanaka, 2020. "Tariffs and Foreign Direct Investment in a North South Product Cycle Model," Discussion Papers in Economics and Business 20-08, Osaka University, Graduate School of Economics.
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    More about this item

    Keywords

    Economic growth; Skill-biased technical change; Offshoring;
    All these keywords.

    JEL classification:

    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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