Tradable and nontradable directed technical change

• Type: Article in International Scientific Journal
• Date: 2020

Authors

Óscar Afonso (Author) FEP; Sequeira, T (Author) Other

Journal

Title: Applied Economics

Vol. 52 No. 36, 1 August

Pages: 3874-3897

ISSN: 0003-6846

Publisher: Taylor & Francis

Indexing

ISI Web of Knowledge - 1 Citation

Scopus - 1 Citation

Other information

Authenticus ID: P-00R-VP5

DOI: 10.1080/00036846.2020.1725233

Abstract (EN): We wish to reconcile the major trends in wages and the terms of trade using a directed technical change approach in which: (i) tradable and nontradable goods can be substitutes or complements; and (ii) scale effects can be present or can be partially or totally removed. With a lower skilled labour ratio and a higher relative wage in the tradable sector, the price (real exchange rate or terms of trade) mechanism is crucial in determining sectoral productivity differences and thus wage inequality. Along the balanced growth path, the real exchange rate can be negatively related with the relative productivities in horizontal innovation (the Balassa-Samuelson effect) and with the relative labour level, depending on scale effects. The wage premium increases due to an increase in the relative labour level in the nontradable sector under substitutability with scale effects or under complementarity without scale effects. A calibrated version of the model indicates that the model closely replicates the data for Germany. Moreover, while the Balassa-Samuelson effect is quantified, an increase in the relative supply of labour in the tradable sector decreases both terms of trade and inequality.

Language: English

Type (Professor's evaluation): Scientific

No. of pages: 24