Working Paper No. 471

A Schumpeterian Model of Protection and Relative Wages

Published: October 1996Pages: 42Keywords: Economic growth, R&D, protection, relative wagesJEL-codes: F10, F12, F13, D32, D41

A Schumpeterian Model of Protection and Relative Wages Elias Dinopoulos and Paul Segerstrom


This paper presents a dynamic general equilibrium model of trade between two advanced countries in which both innovation and skilled acquisition rates are endogenously determined. The model offers a North-North (as opposed to a North-South) trade explanation for increasing relative wage inequality. A global reduction in trade barriers increases R&D investment and accelerates the pace of technological progress. It also reduces the relative wage of unskilled workers and results in skill upgrading, if and only if R&D is the skill-intensive activity relative to manufacturing of final products. Trade liberalization does not affect domestic relative prices in either of the two countries.

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Martin Ljunge, IFN, is the author of a chapter, "Trust promotes health: addressing reverse causality by studying children of immigrants", in a new book edited by Sherman Folland and Eric Nauenberg. The cutting edge of research is presented, covering the ever-expanding social capital field.

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