Kiel Working Papers, Kiel Institute for World Economics
No 921:
Intra-Industry Trade, Endogenous Technological Change, Wage Inequality and Welfare
Roberto A. De Santis
Abstract: By using two alternative intra-industry trade models (1. -
New goods cannot be introduced into the economy; 2. - The possibility for a
set of capital goods available in the economy to vary; both models consider
the existence of an intersectoral linkage), I show by means of Applied
General Equilibrium (AGE) analysis that globalisation (either lower
transport costs or lower tariffs) has an impact on the ratio between the
wage rates of skilled and unskilled labours; but the impact on wage
inequality is far larger, when countries are assumed to exchange
differentiated capital goods. The latter result has been obtained by using
an imperfect competitive model, which embodies a sector bias technological
change that arises from trade. In addition, the gains from trade,
insignificant under the standard trade hypotheses, are extraordinarily
large when endogenous technological change is taken into account. The main
policy conclusion is that if policy makers of flexible wage economies
introduce trade barriers to reduce wage inequality, these protective
measures, by affecting the diffusion of technology, would cause a large
welfare loss.
Keywords: Trade, Technical change, Wage Inequality, Applied General Equilibrium; (follow links to similar papers)
JEL-Codes: D58; F12; F43; J3; (follow links to similar papers)
38 pages, April 1999
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