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The Effects of Factor- and Sector-biased Technical Change Revisited

Author

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  • Robert Stehrer

    (The Vienna Institute for International Economic Studies, wiiw)

Abstract
In the trade-technology-wage debate, the effects of the various forms of technical progress on relative factor prices have been addressed in a number of contributions over the past decade. However, the existing literature is far from conclusive. The various contributions either relied on specific assumptions, such as Leontief technologies or Cobb-Douglas demand, that were decisive for the respective conclusions, or they used a more general framework, arriving at ambiguous results in many cases. In this paper we analyse a general equilibrium framework with CES production and CES demand functions, which allows for any discrete number of sectors and countries integrated via trade flows. Technologies are country- and sector-specific and endowment structures differ across countries. The necessary and sufficient conditions under which the relative wage rates are rising or falling in the domestic and foreign economies are derived. This is done for various types of factor- and sector-biased technical change taking place in a particular sector in either the home or foreign country. The conditions - depending on the relative skill intensity of the innovating sector, the elasticities of substitution in demand and supply, the relative factor endowment and the prevailing (equilibrium) relative wage rate - allow for straightforward economic interpretations. This permits to solve the cases classified as ambiguous in the existing literature and provides clear-cut conditions which are important for modelling and empirical research. Furthermore, the results are interpreted with respect to recent empirical studies where special emphasis is given to the sector-biased versus factor-biased hypotheses.

Suggested Citation

  • Robert Stehrer, 2005. "The Effects of Factor- and Sector-biased Technical Change Revisited," wiiw Working Papers 35, The Vienna Institute for International Economic Studies, wiiw.
    • Handle: RePEc:wii:wpaper:35
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    References listed on IDEAS

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    1. Rudiger Dornbusch & Stanley Fischer & Paul A. Samuelson, 1980. "Heckscher-Ohlin Trade Theory with a Continuum of Goods," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 95(2), pages 203-224.
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    Cited by:

    1. Antea Barišić & Mahdi Ghodsi & Robert Stehrer, 2024. "Assessing the Impact of New Technologies on Wages and Labour Income Shares," wiiw Working Papers 240, The Vienna Institute for International Economic Studies, wiiw.
    2. Éva Polgár & Julia Wörz, 2010. "No risk and some fun? Trade and wages in the enlarged European Union," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 37(2), pages 127-163, May.
    3. Eva Katalin Polgar & Julia Woerz, 2011. "Trade With Central and Eastern Europe: Is It Really a Threat to Wages in the West?," DANUBE: Law and Economics Review, European Association Comenius - EACO, issue 1, pages 1-31, March.
    4. Thomas Brasch, 2016. "Identifying the sector bias of technical change," Empirical Economics, Springer, vol. 50(2), pages 595-621, March.
    5. Thomas von Brasch, 2015. "Indentifying the sector bias of technical change," Discussion Papers 795, Statistics Norway, Research Department.
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    More about this item

    Keywords

    factor prices; technical change; trade; multi-sector and multi-country model;
    All these keywords.

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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