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American Economic Review: Vol. 89 No. 3 (June 1999)

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A Schumpeterian Model of Protection and Relative Wages

Article Citation

Dinopoulos, Elias, and Paul Segerstrom. 1999. "A Schumpeterian Model of Protection and Relative Wages." American Economic Review, 89(3): 450-472.

DOI: 10.1257/aer.89.3.450

Abstract

This paper presents a dynamic general equilibrium model of R&D-based trade between two structurally identical countries in which both innovation and skill acquisition rates are endogenously determined. Trade liberalization increases R&D investment and the rate of technological change. It also reduces the relative wage of unskilled workers and results in skill upgrading within each industry when R&D is the skilled-labor intensive activity relative to manufacturing of final products. Time-series evidence from the United States and simulation analysis support the empirical relevance of the model, which offers a North-North trade explanation for increasing wage inequality.

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Authors

Dinopoulos, Elias (U FL)
Segerstrom, Paul (MI State U)

JEL Classifications

F16: Trade and Labor Market Interactions
F43: Economic Growth of Open Economies
J31: Wage Level and Structure; Wage Differentials
O32: Management of Technological Innovation and R&D


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