Intra-Industry Trade, Endogenous Technological Change, Wage Inequality and Welfare

Kiel Working Paper No. 921

35 Pages Posted: 8 Oct 1999

See all articles by Roberto A. De Santis

Roberto A. De Santis

European Central Bank (ECB) - Directorate General Economics

Multiple version iconThere are 2 versions of this paper

Date Written: April 1999

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 globalisation (either lower transport costs or lower tariffs) rises wage inequality between skilled and unskilled workers as well as within each group; 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.

JEL Classification: D58, F12, F43, J3, O3

Suggested Citation

De Santis, Roberto A., Intra-Industry Trade, Endogenous Technological Change, Wage Inequality and Welfare (April 1999). Kiel Working Paper No. 921. Available at SSRN: https://ssrn.com/abstract=185453 or http://dx.doi.org/10.2139/ssrn.185453

Roberto A. De Santis (Contact Author)

European Central Bank (ECB) - Directorate General Economics ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

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