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Skill-Biased Technological Change and the Real Exchange Rate

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
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:
  • handle: RePEc:bsl:wpaper:2012/08
Last Modified:16 Mar 2018 15:10
Deposited On:08 Mar 2018 13:14

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