The Effect Of China’s Foreign Trade On The Bias Of Technical Change

Technological progress has become a hot topic in the field of economy as animportant driver of economic growth. From the initial study of Hicks neutraltechnical progress, nowadays more and more literatures focus on the directedtechnical change. However, the current study on the Chinese technical change is notin depth. Existing literature has demonstrated our technical change is biased in favorof certain factors of production. However, as the major factors affecting directedtechnical change, the impact of foreign trade has not been given sufficient attention.Now China has become the world’s second largest after the U.S. trading nation. Thedevelopment of foreign trade, to a certain extent, provides a way for China’stechnology innovation. In accordance with previous experience, we make directedtechnical change endogenous, and the two factors of production is assumed to capitaland labor. Then compare the effects of biased technological progress before and afterthe introduction of trade.The main idea of this article is: First create a theoretical model without trade, andanalyze how the related factors affect the directed technical change. Then weintroduce the foreign trade with different countries. It is noteworthy that, our study isthe trade of factors, so we introduce an intermediate manufacturer, and we alsoassume the presence of R&D costs. In the empirical study, we select data based onfundamental research on existing literature to calculate the country’s directedtechnical change. Finally, we use mathematical models and statistical regression tomeasure the correlation between actual occurrence of trade and directed technicalchange.According to the results of our study, compared with the absence of foreign trade, when we trade with more developed countries, Chinese technological progress ismore biased in favor of capital; when we trade with more undeveloped countries,Chinese technological progress is more biased in favor of labor. Thus, we believe that,on the one hand we needs to continue to improve foreign trade, this provides a way toinnovate technology, thereby promoting economic growth; On the other hand, weneed to strengthen trade between the relatively developed countries, this play animportant role to promote our innovative labor-biased technological progress. Theimprovement of labor productivity provides a premise to increase labor compensation,ultimately to achieve economic growth and narrow the income gap win-win situation.