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Trade, technology adoption and wage inequalities: theory and evidence

Maria Bas

PSE Working Papers from HAL

Abstract: This paper develops a trade model with heterogeneous firms introducing a fixed technology cost and different types of skilled labor. The main contribution is to explain the effects of trade integration on the extensive margin of technology adoption and its impact on wage inequalities. The originality of this paper is to combine skilled-biased technological change with international trade theory based on heterogeneous firms in a general equilibrium model. Moreover, it provides empirical evidence supporting the main assumption and predictions of the model using plant level panel data of Chilean's manufacturing sector for the period 1990-1999. The theoretical framework offers a possible explanation of the puzzle concerning the increase in the skill premium in developing countries. The H-O-S model predicts a reduction of inequalities after trade reforms in developing countries, while there is widespread empirical evidence of an increase in the skill premium in these countries. In our model the key mechanism is related to the effects of trade policy on the number of new firms upgrading technology and on the skill intensity. Trade liberalization increases export revenues raising the probability that the most productive exporters will upgrade technology. These firms will increase their relative demand of skilled labor, thereby enhancing the inequalities.

Keywords: firm heterogeneity; trade reforms; technology adoption; skill premium; plant panel data; hétérogénéité des firmes; réforme commerciale; adoption de technologie; inégalités des salaires; données de panel des firmes (search for similar items in EconPapers)
Date: 2008-02
New Economics Papers: this item is included in nep-dev, nep-int and nep-lab
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Working Paper: Trade, Technology Adoption and Wage Inequalities: Theory and Evidence (2008) Downloads
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