A Schumpeterian Model of Protection and Relative Wages | Zendy

Elias Dinopoulos | Zendy; Paul S. Segerstrom | Zendy

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A Schumpeterian Model of Protection and Relative Wages

Author(s) -

Elias Dinopoulos,

Paul S. Segerstrom

Publication year - 1999

Publication title -

american economic review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 16.936

H-Index - 297

eISSN - 1944-7981

pISSN - 0002-8282

DOI - 10.1257/aer.89.3.450

Subject(s) - economics , wage inequality , investment (military) , general equilibrium theory , wage , free trade , empirical evidence , relevance (law) , technological change , liberalization , labour economics , international economics , microeconomics , macroeconomics , market economy , philosophy , epistemology , politics , political science , law

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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