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Indra-Industry Trade, Endogenous Technical Change, Wage Inequality and Welfare

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  • Roberto De Santis

Abstract

By using alternative intra-industry trade models (1. New goods cannot be introduced into the economy; 2. The possibility for a set of capital goods available in the economy to vary; the models consider the existence of intersectoral linkages), I show by means of Applied General Equilibrium (AGE) analysis that trade rises wage inequality between skilled and unskilled workers; but the impact on wage inequality is far larger, when countries are assumed to exchange differentiated capital goods. The latter result has been obtained by using an imperfect competitive model, which embodies a sector bias technological change that arises from trade. In addition, the gains from trade, insignificant under the standard trade hypotheses, are extraordinarily large when endogenous technological change is taken into account. The main policy conclusion is that if policy makers of flexible wage economies introduce trade barriers to reduce wage inequality, these protective measures, by affecting the diffusion of technology, would cause a large welfare loss. [D58, f12, F43, J3, O3]

Suggested Citation

  • Roberto De Santis, 2002. "Indra-Industry Trade, Endogenous Technical Change, Wage Inequality and Welfare," International Economic Journal, Taylor & Francis Journals, vol. 16(3), pages 59-78.
    • Handle: RePEc:taf:intecj:v:16:y:2002:i:3:p:59-78
    DOI: 10.1080/10168730200000021
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    1. Dani Rodrik, 1998. "Has Globalization Gone Too Far?," Challenge, Taylor & Francis Journals, vol. 41(2), pages 81-94, March.
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    Cited by:

    1. Feng, Xiaohua, 2018. "Effect of intra-industry trade on skill premium in manufacturing in China," China Economic Review, Elsevier, vol. 47(C), pages 206-218.
    2. Jalil, Abdul, 2012. "Modeling income inequality and openness in the framework of Kuznets curve: New evidence from China," Economic Modelling, Elsevier, vol. 29(2), pages 309-315.

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