Gubler, Matthias and Sax, Christoph. (2012) Skill-Biased Technological Change and the Real Exchange Rate. WWZ Discussion Papers, 2012 (08).
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Abstract
We sketch a model that shows how skill-biased technological change may reverse the classic Balassa-Samuelson effect, leading to a negative relationship between the productivity in the tradable sector and the real exchange rate. In a small open economy, export goods are produced with capital, high-skilled and low-skilled labor, and traded for imported consumption goods. Non-tradable services are produced with low-skilled labor only. A rise in the productivity of capital has two effects: (1) It may reduce the demand for labor in the tradable sector if the substitutability of low-skilled labor and capital in the tradable sector is high; and (2) it increases the demand for non-tradables and its labor input. Overall demand for low-skilled labor declines if the labor force of the tradable sector is large relative to the labor force of the non-tradable sector. This leads to lower wages and thus to lower prices and a real exchange rate depreciation.
Faculties and Departments: | 06 Faculty of Business and Economics > Departement Wirtschaftswissenschaften > Professuren Wirtschaftswissenschaften > Aussenwirtschaft und Europ. Integration (Weder) 12 Special Collections > WWZ Publications > WWZ Discussion Papers and Working Papers |
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UniBasel Contributors: | Sax, Christoph |
Item Type: | Working Paper |
Publisher: | WWZ, University of Basel |
Number of Pages: | 31 |
Note: | Publication type according to Uni Basel Research Database: Discussion paper / Internet publication |
Language: | English |
Identification Number: |
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edoc DOI: | |
Last Modified: | 16 Mar 2018 15:10 |
Deposited On: | 08 Mar 2018 13:14 |
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