TECHNOLOGY ADVANTAGE, HETEROGENEOUS TALENT AND TRADE

Abstract

This paper will setup a trade model to explore the impact of the diversity of talent distribution and the technology difference on the pattern of trade (POT) and income inequality of an economy. We find that not only the diversity effect but also the technology effect can matter for the pattern of POT. We demonstrate that, in the free-trade equilibrium, if the technology effect dominates the diversity effect then the country with a more (less) diverse distribution of talent may export the goods produced by a technology with supermodularity (submodularity). In addition, we prove that the relative technology difference will affect income inequality. If the technological advance for the submodular sector S is better than for the supermodular sector C, then income inequality would increase.