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From China with love: Effects of the Chinese economy on skill-biased technical change in the US

  • Chu, Angus C.
  • Cozzi, Guido
  • Furukawa, Yuichi

In this study, we analyze the effects of labor shortage 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 if offshoring is present (absent) in equilibrium, then a decrease (an increase) in unskilled labor in the South would lead to skill-biased technical change in the North. This fi�nding highlights the different implications of offshoring and conventional trade on innovation. Furthermore, we �find that an increase in the Southern stock of capital reduces offshoring and also leads to skill-biased technical change. Therefore, rapid capital accumulation and labor shortage in China could lead to a rising skill premium in the US. Calibrating the model to China-US data, we �find that a 1% decrease in unskilled labor (1% increase in capital) in China leads to a 0.8% (0.6%) increase in the skill premium in the US under a moderate elasticity of substitution between skill-intensive and labor-intensive goods.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 40555.

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Date of creation: Aug 2012
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Handle: RePEc:pra:mprapa:40555
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  1. Acemoglu, Daron & Gancia, Gino A & Zilibotti, Fabrizio, 2012. "Offshoring and Directed Technical Change," CEPR Discussion Papers 9247, C.E.P.R. Discussion Papers.
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  4. Gene M. Grossman & Esteban Rossi-Hansberg, 2006. "Trading Tasks: A Simple Theory of Offshoring," NBER Working Papers 12721, National Bureau of Economic Research, Inc.
  5. Daron Acemoglu, 1999. "Patterns of Skill Premia," NBER Working Papers 7018, National Bureau of Economic Research, Inc.
  6. Gino Gancia, 2003. "North-south trade and directed technical change," Economics Working Papers 834, Department of Economics and Business, Universitat Pompeu Fabra, revised May 2006.
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  18. Grossman, G.M. & Helpman, E., 1989. "Quality Ledders In The Theory Of Growth," Papers 148, Princeton, Woodrow Wilson School - Public and International Affairs.
  19. Yuqing Xing, 2011. "Processing Trade, Exchange Rates and China’s bilateral Trade Balances," GRIPS Discussion Papers 10-30, National Graduate Institute for Policy Studies.
  20. Lai, Edwin L. -C., 1998. "International intellectual property rights protection and the rate of product innovation," Journal of Development Economics, Elsevier, vol. 55(1), pages 133-153, February.
  21. Daron Acemoglu & David Autor, 2010. "Skills, Tasks and Technologies: Implications for Employment and Earnings," NBER Working Papers 16082, National Bureau of Economic Research, Inc.
  22. Park, Walter G., 2008. "International patent protection: 1960-2005," Research Policy, Elsevier, vol. 37(4), pages 761-766, May.
  23. Tatsuro Iwaisako & Koichi Futagami, 2013. "Patent protection, capital accumulation, and economic growth," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 52(2), pages 631-668, March.
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