Trade, Technology Adoption and Wage Inequalities: Theory and Evidence
This paper develops a trade model with heterogeneous firms introducing a fixed technology cost and different types of skilled labor. The main contribution is to explain the effects of trade integration on the extensive margin of technology adoption and its impact on wage inequalities. The originality of this paper is to combine skilled-biased technological change with international trade theory based on heterogeneous firms in a general equilibrium model. Moreover, it provides empirical evidence supporting the main assumption and predictions of the model using plant level panel data of Chilean's manufacturing sector for the period 1990-1999. The theoretical framework offers a possible explanation of the puzzle concerning the increase in the skill premium in developing countries. The H-O-S model predicts a reduction of inequalities after trade reforms in developing countries, while there is widespread empirical evidence of an increase in the skill premium in these countries. In our model the key mechanism is related to the effects of trade policy on the number of new firms upgrading technology and on the skill intensity. Trade liberalization increases export revenues raising the probability that the most productive exporters will upgrade technology. These firms will increase their relative demand of skilled labor, thereby enhancing the inequalities
This paper develops a model of trade that features heterogeneous firms, technology choice anddifferent types of skilled labor in a general equilibrium framework. Its main contribution is to explainthe impact of trade integration on technology adoption and wage inequalities. It also providesempirical evidence to support the model's predictions using plant-level panel data from Chile'smanufacturing sector (1990-1999). The theoretical framework offers a possible explanation of thepuzzling increase in skill premium in the developing countries. The key mechanism is found in theeffects of trade policy on the number of new firms upgrading technology and on the skill-intensity oflabor. Trade liberalization pushes up export revenues, raising the probability that the most productiveexporters will upgrade their technology. These firms then increase their relative demand for skilledlabor, thereby raising inequalities.
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