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- Title
The effects of factor and sector biased technical change revisited.
- Authors
Stehrer, Robert
- Abstract
The effects of the various forms of technical progress on relative factor prices have been addressed in a number of contributions over the past decade in the trade-technology-wage debate. However, the existing literature is far from conclusive. The various contributions have either relied on specific assumptions, such as Leontief technologies or Cobb–Douglas demand, that in some cases have been decisive for the respective conclusions, or when using a more general framework arrived at ambiguous results in many cases. In this paper we analyze a general equilibrium framework with constant-elasticity-of-substitution (CES) production and CES demand functions, allowing for a discrete number of sectors and countries integrated via trade flows. Technologies are modeled country- and sector-specific and endowment structures are allowed to differ across countries. These assumptions enable us to derive conditions under which the relative wage rates are rising or falling in the domestic and foreign economies for various types of factor- and sector-biased technical change taking place in a particular sector in either the home or foreign country. The conditions—depending on the relative skill intensity of the innovating sector, the elasticities of substitution in demand and supply, the relative factor endowment and the prevailing (equilibrium) relative wage rate—allow for straightforward economic interpretations. The results permit considering some cases classified as ambiguous in the existing literature and provide clear conditions which could be interesting for modeling and interpretation of empirically observed trends. Furthermore, the results are interpreted with respect to recent empirical studies where special emphasis is given to the sector-biased versus factor-biased hypothesis.
- Subjects
TECHNOLOGICAL progress; INTERNATIONAL trade; COMMERCE; PRICES; PROGRESS; TECHNOLOGICAL innovations
- Publication
Economic Change & Restructuring, 2010, Vol 43, Issue 1, p65
- ISSN
1573-9414
- Publication type
Article
- DOI
10.1007/s10644-009-9078-4