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:||01 Aug 2010|
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