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Working Paper 10-8

Do Developed and Developing Countries Compete Head to Head in High Tech?

by Lawrence Edwards, Cape Town University
and Robert Z. Lawrence, Peterson Institute for International Economics

June 2010

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Amid widespread concerns that both (1) growth in developing countries could worsen the US terms of trade and (2) that increased US trade with developing countries will increase US wage inequality, Lawrence Edwards and Robert Lawrence find that there is no cause for concern. The United States and developing countries each specialize in different product categories that mostly do not overlap. In the cases where exports are in overlapping categories, there are vast differences in unit values, suggesting that the products made by the United States and those made by developing countries are not very close substitutes—developed-country products are more sophisticated. This explains why the US terms of trade have improved and why the wages of unskilled US workers have not fallen victim to downward pressure despite developing-country export expansion.