Capital-skill complementarity and the skill premium in a quantitative model of trade

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Abstract

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 capitalskill 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.

Original languageEnglish (US)
Pages (from-to)72-117
Number of pages46
JournalAmerican Economic Journal: Macroeconomics
Volume5
Issue number2
DOIs
StatePublished - Apr 1 2013

All Science Journal Classification (ASJC) codes

  • Economics, Econometrics and Finance(all)

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