Article InformationEdit

Title: Effect of international technology diffusion on the demand of skilled labor in low and medium technology (LMT) sectors

Author(s): Juan Julio Gutierrez

Affiliation: George Mason University

Presented At: STiS 2008

Primary Topic Area: Globalization


This paper investigates the influence of globalization on the demand of skilled labor, particularly in low and medium technology (LMT) industries as defined in the 2005 OECD scoreboard. We assess the effects of international technology diffusion on the demand for skilled labor within 1771 factories located in 4 Central American countries , which have approved the Central America Free Trade Agreement (CAFTA) with the US.

The paper measures empirically two competing hypotheses: 1) globalization has increased specialization according to comparative advantage; a greater participation in international markets is associated with production of goods that are intensive in unskilled labor in developing countries. 2) The increased participation in international markets has provided access to skill biased technological change, resulting in an increase of the demand for skilled workers.

Using a translog cost function specification the paper tests the influence of three different international economic activities - the use of imported inputs, exports, and foreign direct investment – on skilled labor demand in LMT sectors.

First, we find that factories that use imported inputs exhibit a higher skilled labor demand. This finding is particularly strong for plants manufacturing apparel and chemicals and may reflect the trade agreement requirements to use U.S.-made yarn and/or fabric as inputs for apparel end-products. In contrast, for rubber, plastic and other non-metallic mineral products, the use of imported outputs has an effect of specialization according to comparative advantage in unskilled labor-intensive goods. Second, exports as percentage of sales show a negative influence on the demand of skilled labor. Finally, the impact of FDI is weak. It indicates that the role of FDI as either as a source of SBTC nor specialization in low skilled comparative advantage is unclear.

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