Abstract

I examine the e ect of trade liberalization on relative prices and technology in a model with two types of labor and intellectual property rights (IPR) protection. Trade liberalization under IPR enforcement leads to more innovation and relative price e effects can be (partly) compensated by changes in relative technology. I calibrate the model using data on the US in 1985 and demonstrate that under IPR protection trade liberalization leads to a higher wage gap, lower unemployment, and to higher wages for all workers. Without IPR protection the wages for low skilled workers decrease and their unemployment rate increase after trade liberalization.

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