Effects of economic development in China on skill-biased technical change in the US

Chu, A.; Cozzi, G.; Furukawa, Y.

doi:10.1016/j.red.2014.04.001

Effects of economic development in China on skill-biased technical change in the US

Chu, A.; Cozzi, G.; Furukawa, Y.

Authors

A. Chu

G. Cozzi

Y. Furukawa

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.

Citation

Chu, A., Cozzi, G., & Furukawa, Y. (2015). Effects of economic development in China on skill-biased technical change in the US. Review of Economic Dynamics, 18(2), 227-242. https://doi.org/10.1016/j.red.2014.04.001

Journal Article Type	Article
Online Publication Date	Apr 18, 2014
Publication Date	Apr 1, 2015
Deposit Date	Jun 2, 2014
Publicly Available Date	Feb 26, 2016
Journal	Review of Economic Dynamics
Print ISSN	1094-2025
Publisher	Elsevier
Peer Reviewed	Peer Reviewed
Volume	18
Issue	2
Pages	227-242
DOI	https://doi.org/10.1016/j.red.2014.04.001
Keywords	Economic growth, Skill-biased technical change, Offshoring.
Public URL	https://durham-repository.worktribe.com/output/1430035

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Copyright Statement
NOTICE: This is the author’s version of a work that was accepted for publication in Review of Economic Dynamics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Review of Economic Dynamics, 18, 2, April 2015, 10.1016/j.red.2014.04.001