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.

Interdisciplinary European Studies

The European Union and the Return of the Nation State

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This book explores the complex and ever-changing relationship between the European Union and its member states. The recent surge in tension in this relationship has been prompted by the actions of some member state governments as they question fundamental EU values and principles and refuse to implement common decisions seemingly on the basis of narrowly defined national interests.

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