TITLE:
A Note on Wage Inequality, Technology, and Trade
AUTHORS:
Chu-Ping Lo
KEYWORDS:
Wage Inequality, International Outsourcing Trade
JOURNAL NAME:
Modern Economy,
Vol.2 No.3,
July
27,
2011
ABSTRACT: Zeira (2007) presents a two-country model of endogenous technology and trade, illustrating that trade liberalization reduces wage inequality in developing countries. The result contrasts the current outsourcing trade literature; the conflict is due to the critical assumption made in his model that “the most rewarding technologies are invested first.” If we relax this assumption, or allow the technology frontier to foster labor gains in all existing industries, then Zeira’s model is, in fact, consistent with the current outsourcing trade literature.