Wage Differential, Trade, Productivity Growth and Education

Hsaio-chuan Chang ()

Departmental Working Papers from The Australian National University, Arndt-Corden Department of Economics

Abstract: There is a large literature on the link between wage differential, international trade and productivity growth. The theoretical and empirical research is mainly based on the Heckscher-Ohlin-Samuelson framework and on the cases of a large country. More comprehensive theoretical models are needed to guide further empirical research. This paper contributes to the debate by providing a dynamic intertemporal general equilibrium (DIGE) model incorporating endogenous skill formation. The result tends to support the argument that trade has a responsibility for wage differential. A cut in government education investment tends to raise wage differential. Productivity growth at best causes wage differential in the short run. From a theoretical perspective it is unclear whether productivity growth raises wage differential in the long run once the accumulation of skills is endogenized.

Pages: 22 pages
Date: 1999-11
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Citations: View citations in EconPapers (2)

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