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

2013 ◽  
Vol 5 (2) ◽  
pp. 72-117 ◽  
Author(s):  
Fernando Parro
Keyword(s):  
Technical Change ◽  
Quantitative Model ◽  
Trade Costs ◽  
Relative Price ◽  
Skill Premium ◽  
Unskilled Labor ◽  
Capital Goods ◽  
Trade Model ◽  
Skilled And Unskilled Labor ◽  
The Impact

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)

scholarly journals Merger Policy in a Quantitative Model of International Trade*

2019 ◽  
Author(s):  
Holger Breinlich ◽  
Volker Nocke ◽  
Nicolas Schutz
Keyword(s):  
International Trade ◽  
Quantitative Model ◽  
Trade Costs ◽  
Oligopolistic Competition ◽  
Merger Policy ◽  
Trade Model ◽  
Level Data ◽  
The Impact ◽  
Industry Level Data ◽  
The U.S

Abstract In a two-country international trade model with oligopolistic competition, we study the conditions on market structure and trade costs under which a merger policy designed to benefit domestic consumers is too tough or too lenient from the viewpoint of the foreign country. We calibrate the model to match industry-level data in the U.S. and Canada. Our results suggest that at present levels of trade costs, merger policy is too tough in the vast majority of sectors. We also quantify the resulting externalities and study the impact of different regimes of coordinating merger policies at varying levels of trade costs.

scholarly journals UNRAVELING THE SKILL PREMIUM

2017 ◽  
Vol 22 (1) ◽  
pp. 33-62 ◽  
Author(s):  
Peter McAdam ◽  
Alpo Willman
Keyword(s):  
Technical Change ◽  
Empirical Work ◽  
Equation System ◽  
The United States ◽  
Skill Premium ◽  
Unskilled Labor ◽  
Constant Elasticity ◽  
Constant Elasticity Of Substitution ◽  
Skilled And Unskilled Labor ◽  
Substitution Elasticities

For the United States, the supply and wages of skilled labor relative to those of unskilled labor have grown over the postwar period. The literature has tended to explain this through “skill-biased technical change” (SBTC). Empirical work has concentrated around two variants: (1) capital-skill complementarity, (2) skill-augmenting technical change. Our purpose is to nest and discriminate between these two explanations. We do so in the framework of multilevel Constant Elasticity of Substitution (CES) production function, where factors are disaggregated into skilled and unskilled labor, and capital into structures and equipment capital. Using a five-equation system approach and several nesting alternatives, we retrieve estimates of the substitution elasticities and technical changes. Our estimations can produce results in line with capital-skill-complementarity hypothesis. However, those results are outperformed where the only source of the widening skill premium has been skill-augmenting technical change. We also show that the different explanations for SBTC have different implications for projected developments of the premium.

Conclusions

2016 ◽  
Author(s):  
Francesco Caselli
Keyword(s):  
Technical Change ◽  
Unskilled Labor ◽  
Skill Bias ◽  
Skilled And Unskilled Labor ◽  
Over Time

This chapter concludes that the book has presented evidence showing that technology and technical change are more flexible than generally allowed. The efficiency of different factors changes across countries and over time at different rates. Indeed, in some instances the efficiency with which one factor is used can decline while the efficiency of others increases. Since the 1990s, it has been increasingly clear that technical change tends to have a skill bias, but this book's findings reveal that nonneutralities are much more pervasive than that. They also occur across countries, and not just over time. Furthermore, they invest a broader set of inputs: not only skilled and unskilled labor, but also experienced and inexperienced workers, natural and reproducible capital, and a broad labor aggregate and a broad capital aggregate. The book has merely scratched the surface of the likely patterns of nonneutrality that exist across countries and over time.

DOES TRADE IN INTERMEDIATE GOODS INCREASE OR DECREASE WAGE INEQUALITY?

2007 ◽  
Vol 52 (02) ◽  
pp. 201-213 ◽  
Author(s):  
WENLI CHENG ◽  
DINGSHENG ZHANG
Keyword(s):  
Developing Country ◽  
Wage Inequality ◽  
Intermediate Good ◽  
Intermediate Goods ◽  
Unskilled Labor ◽  
Developed Country ◽  
Good Will ◽  
Skilled And Unskilled Labor ◽  
Production Technologies ◽  
The Impact

This paper develops two models to study the impact of trade in intermediate goods on wage inequality between skilled and unskilled labor in a developed country and a developing country. The first model assumes symmetric production technologies in the intermediate good. It predicts that trade in the intermediate good will increase wage inequality in the developed country, but decrease wage inequality in the developing country. The second model assumes asymmetric technologies in the intermediate good. It predicts that trade in the intermediate good can lead to an increase in wage inequality in both the developed country and the developing country.

scholarly journals The Rise and Fall of India’s Relative Investment Price: A Tale of Policy Error and Reform

2022 ◽  
Vol 14 (1) ◽  
pp. 146-178
Author(s):  
Alok Johri ◽  
Md Mahbubur Rahman
Keyword(s):  
Import Substitution ◽  
Relative Price ◽  
Capital Goods ◽  
Point Reduction ◽  
Tariff Rates ◽  
Import Restrictions ◽  
The Impact ◽  
Indian Data

India’s relative price of investment rose 44 percent from 1981 to 1991 and fell 26 percent from 1991 to 2006. We build a simple DGE model, calibrated to Indian data, in order to explore the impact of capital import substitution policies and their reform post-1991 in accounting for this rise and fall. Our model delivers a 23 percent rise before reform and a 31 percent fall thereafter. GDP per effective labor was 3 percent lower in 1991 compared to 1981 due to import restrictions on capital goods. Their removal, and a 71 percentage point reduction in tariff rates, raised GDP per effective labor permanently by 20 percent. (JEL E22, E23, F13, O11, O16, O19)

scholarly journals Railroads of the Raj: Estimating the Impact of Transportation Infrastructure

2018 ◽  
Vol 108 (4-5) ◽  
pp. 899-934 ◽  
Author(s):  
Dave Donaldson
Keyword(s):  
Real Income ◽  
Trade Costs ◽  
Transportation Infrastructure ◽  
Reduced Form ◽  
Sufficient Statistic ◽  
Income Levels ◽  
Colonial India ◽  
Trade Model ◽  
Railroad Network ◽  
The Impact

How large are the benefits of transportation infrastructure projects, and what explains these benefits? This paper uses archival data from colonial India to investigate the impact of India's vast railroad network. Guided by four results from a general equilibrium trade model, I find that railroads: (1) decreased trade costs and interregional price gaps; (2) increased interregional and international trade; (3) increased real income levels; and (4) that a sufficient statistic for the effect of railroads on welfare in the model accounts well for the observed reduced-form impact of railroads on real income in the data. (JEL H54, L92, N75, O22, R12, R42)

The Impact of the Economic Crisis on International Migration: The Case of Indonesia

1998 ◽  
Vol 7 (2-3) ◽  
pp. 313-338 ◽  
Author(s):  
Aris Ananta ◽  
Daksini Kartowibowo ◽  
Nur Hadi Wiyono ◽  
Chotib
Keyword(s):  
Government Policies ◽  
Market Forces ◽  
Unskilled Labor ◽  
Illegal Migration ◽  
Host Countries ◽  
International Labor ◽  
Skilled And Unskilled Labor ◽  
The Government ◽  
Liberalization Policy ◽  
The Impact

The severe and long crisis that hit Indonesia has affected many facets of the country's life, including migration into and from Indonesia. The paper describes the worsening of economic conditions in Indonesia, which may last until at least the end of 1998. Emigration pressures on both the skilled and unskilled labor force will keep rising. The paper argues that leaving out market forces in the government policies of Indonesia as well as those of the host countries are only likely to lead to illegal migration. The main recommendation of the paper is to have a comprehensive liberalization policy which considers market forces in the larger context of international relations. The issue of out-migration from Indonesia should be seen simultaneously with the entry of international labor, trade and capital to Indonesia.

scholarly journals Trade-Induced Structural Change and the Skill Premium

2019 ◽  
Vol 11 (3) ◽  
pp. 289-326 ◽  
Author(s):  
Javier Cravino ◽  
Sebastian Sotelo
Keyword(s):  
International Trade ◽  
Negative Impact ◽  
Real Income ◽  
Skill Premium ◽  
Relative Wage ◽  
Unskilled Labor ◽  
Manufacturing Employment ◽  
Goods And Services ◽  
Trade Model ◽  
Unskilled Workers

We study how international trade affects manufacturing employment and the relative wage of unskilled workers when goods and services are traded with different intensities. Manufacturing trade reduces manufacturing prices worldwide, which reduces manufacturing employment if manufactures and services are complements. International trade also raises real income, which reduces manufacturing employment if services are more income elastic than manufactures. Manufacturing production is unskilled-labor-intensive, so that these changes increase the skill premium. We incorporate these mechanisms in a quantitative trade model and show that reductions in trade costs had a negative impact on manufacturing employment and the relative wage of unskilled workers. (JEL F16, J24, J31, L60)

scholarly journals The Effect of Foreign Direct Investment from Austria on Skilled and Unskilled Labor in Bosnia and Herzegovina

2016 ◽  
Vol 6 (1) ◽  
pp. 210
Author(s):  
Safet Kurtovic ◽  
Haris Dacic ◽  
Sead Talovic
Keyword(s):  
Economic Development ◽  
Foreign Direct Investment ◽  
Labor Market ◽  
Bosnia And Herzegovina ◽  
Direct Investment ◽  
Series Data ◽  
Unskilled Labor ◽  
Independent Variables ◽  
Skilled And Unskilled Labor ◽  
The Impact

<p class="ber"><span lang="EN-US">Foreign direct investment (FDI) is considered a major factor in the process of a country's economic development. The presence of FDI in host countries has multiple effects on their economic development. One of these effects pertains to the change in organization and composition of labor market. With that in mind, this paper studies the effect of FDI inflow from Austria on the labor market in Bosnia and Herzegovina (B&amp;H). It analyzes the time series data for the period 2005 - 2014. The research of the paper is divided into two parts. The first part studies the effect of certain independent variables on the increase in real average wages of skilled and unskilled labor. The second part examines the effect of certain independent variables on the increase in the number of skilled and unskilled workers. This paper applies the North-South Model and OLS Regression. The research has shown that the impact of the majority of independent variables on dependent variables is statistically significant.</span></p>

Impact of Determinants of Industrial Development on Employment and Wages in Indian Manufacturing

2020 ◽  
pp. 18-30
Keyword(s):  
Technical Efficiency ◽  
Total Factor Productivity ◽  
Technical Change ◽  
Positive Impact ◽  
Manufacturing Sector ◽  
Factor Productivity ◽  
Firm Level ◽  
Employment Level ◽  
The Impact ◽  
Level Performance

ABSTRACT The present study was undertaken to explore the evolution of the impact of firm-level performance on employment level and wages in the Indian organized manufacturing sector over the period 1989-90 to 2013-14. One of the major components of the economic reform package was the deregulation and de-licensing in the Indian organized manufacturing sector. The impact of firm-level performance on employment and wages were estimated for Indian organized manufacturing sector in major sub-sectors in India during the period from 1989-90 to 2013-14 of the various variables namely profitability ratio, total factor productivity change, technical change, technical efficiency, openness (export-import), investment intensity, raw material intensity and FECI in total factor productivity index, technical efficiency, and technical change. The study exhibited that all explanatory variables except profitability ratio and technical change cost had a positive impact on the employment level. Out of eight variables, four variables such as net of foreign equity capital, investment intensity, TFPCH, and technical efficiency change showed a positive impact on wages and salary ratio and rest of the four variables such as openness intensity, technology acquisition index, profitability ratio, and technical change had negative impact on wages and salary ratio. In this context, the profit ratio should be distributed as per the marginal rule of economics such as the marginal productivity of labour and capital.

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