ECONOMIC-DEVELOPMENT AND TRADE IN THE WORLD-ECONOMY

Trade with emerging economies may depress wages of unskilled workers i n rich countries. This problem has been discussed extensively in recen t years. The present paper contributes to that discussion by applying a calibrated model of the world economy (WorldScan) from CPB Netherlan ds Bureau for Economic Policy Analysis. As appears from a counterfactu al analysis trade with developing countries could explain about half o f the increase in skill premium observed in some developed economies. Growth in emerging economies is often driven by capital accumulation. The Heckscher-Ohlin theory predicts what may happen in a model with ma ny countries and many goods. However, that theory is based on a number of simplifying assumptions. It remains to be seen if the results are robust if the problem of capital accumulation is analyzed in the conte xt of WorldScan. (C) 1998 Elsevier Science B.V.