Effects of Economic Development in China on Skill-Biased Technical Change in the US

Chu, Angus C. and Cozzi, Guido and Furukawa, Yuichi (2012): Effects of Economic Development in China on Skill-Biased Technical Change in the US.

Abstract

In this study, we explore the effects of a change in unskilled labor 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: absent offshoring and lacking intellectual property rights (IPRs) in China - as in the early 1980s - an increase in unskilled labor in China should lead to skill-biased technical change. If instead offshoring is present and/or IPRs are better enforced (as in more recent times), then a decrease in unskilled labor in China should lead to skill-biased technical change. Furthermore, an increase in the per capita stock of capital in China reduces offshoring and also leads to skill-biased technical change. Calibrating the model to China-US data, we find that under a moderate elasticity of substitution between skill-intensive and labor-intensive goods, the decrease in unskilled labor and the increase in capital in China can explain about one-third of the recent increase in the skill premium in China through skill-biased technical change in the US.

• Item Type: MPRA Paper
• Language: English
• Keywords: economic growth; skill-biased technical change; offshoring
• Subjects: F - International Economics > F1 - Trade > F16 - Trade and Labor Market Interactions; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure ; Wage Differentials; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O33 - Technological Change: Choices and Consequences ; Diffusion Processes; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O14 - Industrialization ; Manufacturing and Service Industries ; Choice of Technology

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