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 intellectual property rights (IPRs) and offshoring are different ways for the labor endowment of the South to affect the size of the market for innovations in the North. Absent offshoring and lacking IPRs in the South - as in China in the early 1980s - an increase in Southern unskilled labor should lead to skill-biased technical change. If instead offshoring is present and/or IPRs are better enforced (as in China in more recent times), then a decrease in unskilled labor in the South should lead to skill-biased technical change. Furthermore, an increase in Southern per capita stock of capital 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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