Article

A Schumpeterian Model of Protection and Relative Wages

American Economic Review (Impact Factor: 2.69). 06/1999; 89(3):450-472. DOI: 10.1257/aer.89.3.450
Source: RePEc

ABSTRACT This paper presents a dynamic general equilibrium model of R&D-based trade between two structurally identical countries in which both innovation and skill acquisition rates are endogenously determined. Trade liberalization increases R&D investment and the rate of technological change. It also reduces the relative wage of unskilled workers and results in skill upgrading within each industry when R&D is the skilled-labor intensive activity relative to manufacturing of final products. Time-series evidence from the United States and simulation analysis support the empirical relevance of the model, which offers a North-North trade explanation for increasing wage inequality.

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    • "They found that openness boosts education and human capital accumulation in the North, and reduces them in the South. The subsequent extensions of this initial model have led to similar findings (Borsook, 1987; Dinopoulos & Segerstrom, 1999). North-South trade is also skill-enhancing in Grossman & Helpman (1991), Janeba (2003), Falvey et al. (2010). "
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    • "They found that openness boosts education and human capital accumulation in the North, and reduces them in the South. The subsequent extensions of this initial model have led to similar findings (Borsook, 1987; Dinopoulos & Segerstrom, 1999). North-South trade is also skill-enhancing in Grossman & Helpman (1991), Janeba (2003), Falvey et al. (2010). "
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    ABSTRACT: To analyse the impacts of globalization upon social segmentation in advanced economies, we build a model in which (i) households differ in their skill and capital endowments, and (ii) there is a minimal consumption under which they are excluded from the labour market. North-South globalization (NSG) changes income distribution in favour of skilled labour and capital, and North-North globalization (NNG) creates tax competition. The model endogenously generates four types of households: the excluded, the rentiers, the ‘classical’ (whose working time increases with real wages) and the ‘non-classical’ (displaying the opposite relationship). Globalization modifies the size of each group. NNG makes the groups of rentiers and excluded to expand whereas NSG has an inverted-U impact on the dimension of both groups. The simulations performed with plausible values of the parameters and factor payments show that Globalization (NSG+NNG) increases the number of excluded and the number of rentiers.
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    • "If the first wave of semiendogenous growth models were right, there would be no positive and sustained growth in per capita incomes in this significant portion of the globe! For these reasons, a more recent wave of semi-endogenous growth models (including, for example, Young 1998; Dinopoulos and Thompson 1998; Howitt 1999) has explained how we can observe positive economic growth even without population change. "
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