Abstract
Since the rising skill premium in developing countries is paradoxical of what Heckscher-Ohlin-Samuelson have predicted, the global value chains (GVCs) participation seems to be a weak explanation for such rise in skill premium, while the skill-biased technological change (SBTC), which is induced by GVCs participation, becomes a dominant driver. Previous studies have treated GVCs participation and SBTC as two separate determinants of the skill premium and lacked an unified model to analyse their interactions. Therefore, we add SBTC into the trade model to strengthen the effect of GVCs participation on skill premium. Using an updated dataset of China’s service industry from 1995 to 2014, we examine whether GVCs participation increases skill premium via SBTC channel. We find that SBTC accounts for 75–82% of the total effect across sectors, especially in high-tech intensive sectors. Our empirical results provide many policy implications including strengthening the SBTC mechanism to improve the skill premium.
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