International knowledge spillovers and wage inequality in developing countries

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Abstract

In this paper, international knowledge spillovers are incorporated in a horizontal innovation model, designed to explain the observed uncertain effects that openness of trade can have on wage inequality in small developing countries. Openness of trade can produce two different effects: an increase in the relative price of less-skilled labor-intensive products and a wider skill discrepancy due to knowledge spillovers from the more to less developed country. The former triggers a fall in the wage premium, while the latter widens the wage premium gap in a developing country. These two opposing forces explain the observed uncertain effects of openness to trade on wage inequality in developing countries.

Original languageEnglish
Pages (from-to)1208-1214
Number of pages7
JournalEconomic Modelling
Volume26
Issue number6
DOIs
StatePublished - Nov 2009

Keywords

  • Developing country
  • Endogenous growth model
  • International knowledge spillovers
  • Wage inequality

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