The Impact Of Intra-industry Trade-induced Technical Progress On The Skill Premium Of Chinese Manufacturing

With the deepening of reform and opening,China participates in international trade activities more frequently,and economic development has made remarkable achievements.During this period,Chinese's leading trade pattern has changed greatly.On Chinese manufacturing sector,the Grubel-Lloyd index of overall manufacturing industry showed a gradual upward trend from 1997 to 2003,and the average value from 1997 to 2008 is still up to 0.86 despite of a slight decline from 2004 to 2008.This shows that,to some extent,the leading pattern of trade in Chinese manufacturing sector has shifted to the intra-industry trade.With the development of intra-industry trade,the skill premium(the ratio of the average wage of high-skilled workers and low-skilled workers)has changed dramatically.The overall level of the skill premium in Chinese manufacturing sector in 1997 was 0.80,but 2.18 in 2004.Although the level had started to decline from 2005,most of the declining levels were higher than the levels before 2004.Given the technological progress is the main channel by which the intra-industry trade influences the skill premium,this paper will study the impact of intra-industry trade-induced technical progress on the skill premium theoretically and empirically.This paper firstly,based on the theoretical model of Ekholm and Knarvilk(2005),analyzes theoretically the impact of intra-industry trade on the level of technology and then changing the relative wages of high-skilled labor[31].The model used the reduced trading cost among the same products to represent the development of intra-industry trade,and used the increased share of modern firms to represent technical progress.Theoretical analysis results show that,the reduced trading cost attracts modern firms of a high technical level to enter the market to make more profits.This can increase the number of modern firms and raise the level of technology in the market,which leads to the more relative demand of high-skilled labors and changes the relative returns to them.Then based on the empirical model from Maria(2008)1401 and the panel data of sub-sectors of Chinese manufacturing from 1997 to 2008,this paper tests the results of theoretical derivation from the angles of the whole industry and sub-sectors.The empirical results show that:the development of intra-industry trade leads to the introduction of new technology and technological innovation;With the development of intra-industry trade and the technical progress induced by the intra-industry trade,the skill premium increased from 1997 to 2003,while declined from 2004 to 2008;Compared with the whole industry,Intra-industry trade in the high-skilled labor-intensive sectors has a greater impact on the skill premium,while the impact of the low-skilled labor-intensive sectors is not significant.Therefore,when China speed's up the trading process and the upgrading process of manufacturing industrial structure to enhance the trade status,firms should absorb and adopt the technology to match the skill level of workers based on Chinese labor endowments?On the other hand,we must focus on the localization of the foreign technology,take technical transformation and innovation based on effective absorption and imitation,and improve our level of technology step by step.Besides,we should also continue to strengthen more emphasis on education,especially the professional education and training for low-skilled labors,which can improve the skill level of low-skilled workers and make more low-skilled labors transform to high-skilled labors.So the supply of high-skilled labors increases,which can offset the effect of increased demand for high-skilled labor on the skill premium,and thereby improve the situation of unequal income distribution in China.