Munich Personal RePEc Archive

From China with love: Effects of the Chinese economy on skill-biased technical change in the US

Chu, Angus C. and Cozzi, Guido and Furukawa, Yuichi (2012): From China with love: Effects of the Chinese economy on skill-biased technical change in the US.

WarningThere is a more recent version of this item available.
[img]
Preview
PDF
MPRA_paper_40555.pdf

Download (237kB) | Preview

Abstract

In this study, we analyze the effects of labor shortage in China on the direction of innovation in the US by incorporating production offshoring into a North-South model of directed technical change. We �find that if offshoring is present (absent) in equilibrium, then a decrease (an increase) in unskilled labor in the South would lead to skill-biased technical change in the North. This fi�nding highlights the different implications of offshoring and conventional trade on innovation. Furthermore, we �find that an increase in the Southern stock of capital reduces offshoring and also leads to skill-biased technical change. Therefore, rapid capital accumulation and labor shortage in China could lead to a rising skill premium in the US. Calibrating the model to China-US data, we �find that a 1% decrease in unskilled labor (1% increase in capital) in China leads to a 0.8% (0.6%) increase in the skill premium in the US under a moderate elasticity of substitution between skill-intensive and labor-intensive goods.

Available Versions of this Item

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.