The effects of factor and sector biased technical change revisited

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in FIW -Working PaperThe effects of factor and sector biased technical change revisited Robert StehrerIn 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 have either relied on specific assumptions, such as Leontief technologies or Cobb-Douglas demand, that have been 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 hypothesis.

No risk and some fun? Trade and wages in the enlarged European Union

“…7 In the specific context of offshoring Hijzen et al (2007, p. 3), state that ''In general, these studies conclude that almost anything can happen to wages depending on the configuration of sectoral factorintensities, the relative factor-intensity of components relocated abroad and relative factor endowments''. See also Stehrer (2005). 8 This also holds for more recent theoretical papers on the topic.…”

Identifying the sector bias of technical change

“…Some of the results were ambiguous. Stehrer (2010) shed light on this ambiguity. In a more detailed study, he analysed the effects of technical change on relative wages for various combinations of parameter values in an economy characterised by CES utility and production functions.…”

“…Of particular importance is the elasticity of substitution in demand and in production. Since the model in Stehrer (2010) holds a discrete number of sectors the elasticity of substitution in production can be assumed to be sector-specific. Stehrer (2010) assumes endogenous product prices both when considering a closed economy and when extending the framework to a discrete number of trading economies.…”

“…Since the model in Stehrer (2010) holds a discrete number of sectors the elasticity of substitution in production can be assumed to be sector-specific. Stehrer (2010) assumes endogenous product prices both when considering a closed economy and when extending the framework to a discrete number of trading economies. Consequently, in the case of trading economies, the law of one price does not hold, since each good is considered a specific brand.…”

Global Value Chains and Relative Labour Demand: A Geometric Synthesis of Neoclassical Trade Models

“…For example, Feenstra and Hanson refer to an ‘apparent conflict in the literature’ (Feenstra and Hanson, , p. 908) since ‘the hypothesized effects are highly dependent on the microeconomic foundations of the model chosen’ (Feenstra, , p. 3). Stehrer (, p. 1) explains that unambiguous conclusions cannot be achieved without the explicit assumption of, for example, Cobb–Douglas demand or Leontief technologies. The literature is probably best characterized by Kohler () who describes it as being fragmented into ‘casuistic discussions’ (p. 91) that explain what might happen in a specific instance but lack an all‐encompassing framework.…”