Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/123433
Authors: 
Gubler, Matthias
Sax, Christoph
Year of Publication: 
2012
Series/Report no.: 
WWZ Discussion Paper 2012/08
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.
Subjects: 
Real Exchange Rate
Balassa-Samuelson Hypothesis
Skill-biased Technological Change
General Equilibrium
JEL: 
F16
F31
F41
J24
Document Type: 
Working Paper

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