Capital-Skill Complementarity and the Skill Premium in a Quantitative Model of Trade

Fernando Parro

American Economic Journal: Macroeconomics, 2013, vol. 5, issue 2, 72-117

Abstract: Technological change has reduced the relative price of capital goods. Reductions in trade costs make it cheaper to import capital goods. With capital-skill complementarity, both can increase the skill premium. I construct a general-equilibrium trade model with capital-skill complementarity to study the impact of changing worldwide trade costs and technologies on the skill premium. The impacts of trade costs and technical change are comparable, especially in developing countries, and much larger than Stolper-Samuelson effects. I find that both skilled and unskilled labor gain from trade, and that larger gains from trade are associated with larger increases in the skill premium. (JEL E22, F11, F16, J24, O33)

JEL-codes: E22 F11 F16 J24 O33 (search for similar items in EconPapers)
Date: 2013
Note: DOI: 10.1257/mac.5.2.72
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Citations: View citations in EconPapers (128)

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