Economics and Finance Seminar Series
Dr Giammario Impullitti (Cambridge University): Innovation Races, Offshoring and Wage Inequality
Abstract: The US position as the global leader in innovation is increasingly challenged by foreign competition in the 1970s and 1980s. In those years we also observe a substantial increase in the US skill premium and residual inequality.
I build a two-region version of the quality ladder growth model with a technology gap implying that firms in the leading region innovate in all sectors of the economy, while foreign firms innovate only in some sectors. Workers are heterogeneous in their ability to acquire skills by investing in education, and innovation is performed by skilled workers. I study the effects of a reduction in the technology gap on the skill premium and on residual inequality in an economy with and without the opportunity to offshore production and innovation. The main result is that foreign technological competition, triggered by a reduction in the gap, increases innovation in the leading region, as well as both dimensions of inequality. The quantitative analysis exploits the variation in the geographical distribution of R&D investment in the OECD STAN data to construct an index of international technology gap. In a calibrated version of the model, the observed increase in the gap index produces up to 1/6th of the observed increase in the US skill premium, and up to about one half of the increase in residual inequality in the period 1979-95.
Related Links
Download this event in iCalendar format
Archive of previous research seminars
Dr Giammario Impullitti (Cambridge University): Innovation Races, Offshoring and Wage Inequality
Abstract: The US position as the global leader in innovation is increasingly challenged by foreign competition in the 1970s and 1980s. In those years we also observe a substantial increase in the US skill premium and residual inequality.
I build a two-region version of the quality ladder growth model with a technology gap implying that firms in the leading region innovate in all sectors of the economy, while foreign firms innovate only in some sectors. Workers are heterogeneous in their ability to acquire skills by investing in education, and innovation is performed by skilled workers. I study the effects of a reduction in the technology gap on the skill premium and on residual inequality in an economy with and without the opportunity to offshore production and innovation. The main result is that foreign technological competition, triggered by a reduction in the gap, increases innovation in the leading region, as well as both dimensions of inequality. The quantitative analysis exploits the variation in the geographical distribution of R&D investment in the OECD STAN data to construct an index of international technology gap. In a calibrated version of the model, the observed increase in the gap index produces up to 1/6th of the observed increase in the US skill premium, and up to about one half of the increase in residual inequality in the period 1979-95.
Related Links
Download this event in iCalendar format
