Trade liberalisation, skill-biased technical change and wages in developing countries: a model with heterogeneous firms
This paper analyses the effects of trade liberalisation and technical change on real and relative wages. It builds a model with monopolistic competition, heterogeneous firms and two countries, North and South, and solves it numerically. Skill-biased technical change, caused by decreases in the price of imported equipment as a result of reduced trade costs or falls in its world price, tends to increase the relative wages of skilled workers. This increase in the skill premium can occur even in skill-scarce developing countries, as has often been observed in reality, even though Stolper-Samuelson effects pull the other way. What drives the rise in skilled wages when imported equipment becomes cheaper is the rise in demand for skilled workers in the most productive firms in each sector. Whether or not real unskilled wages increase absolutely after trade liberalisation appears to depend on whether trade costs are ad valorem or per-unit.
|Date of creation:||2010|
|Contact details of provider:|| Postal: Manor Road, Oxford, OX1 3UQ|
Phone: +44-(0)1865 271084
Fax: +44-(0)1865 281447
Web page: http://www.csae.ox.ac.uk/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:csa:wpaper:2010-27. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Richard Payne)
If references are entirely missing, you can add them using this form.