Working Paper: CEPR ID: DP3420
Authors: J. Peter Neary
Abstract: I argue that increased foreign competition can affect technical choice and skill differentials even when actual imports do not rise significantly. I present a model of General Oligopolistic Equilibrium (?GOLE?) in which a reduction in import barriers (whether technological or policy-imposed) encourages more strategic investment by incumbent firms. The predictions accord with many of the stylised facts: higher skill premia; higher ratios of skilled to unskilled workers employed in all sectors and throughout the economy; little change in import volumes or prices; and rapid technological progress with rather little change in total factor productivity.
Keywords: General Oligopolistic Equilibrium; Skill Premia; Skill-Based Technical Progress; Strategic Investment; Trade and Wages
JEL Codes: F12; F16; J31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increased foreign competition (F69) | Higher skill premia (J31) |
| Reduction in import barriers (F14) | Increased foreign competition (F69) |
| Increased foreign competition (F69) | Strategic investment by domestic firms (F23) |
| Strategic investment by domestic firms (F23) | Higher demand for skilled labor (J24) |
| Higher demand for skilled labor (J24) | Higher skill premia (J31) |
| Reduction in import barriers (F14) | Higher skill premia (J31) |
| Increased foreign competition (F69) | Changes in technical choice (O33) |
| Changes in technical choice (O33) | Wage inequality (J31) |
| Increased foreign competition (F69) | Skill differentials in the labor market (J31) |