A Schumpeterian Model of Protection and Relative Wages
- 1 June 1999
- journal article
- Published by American Economic Association in American Economic Review
- Vol. 89 (3) , 450-472
- https://doi.org/10.1257/aer.89.3.450
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. (JEL F10, F12, F13, D32, D41)Keywords
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