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We estimate the relative influence of trade versus technology on wages in a “large-country” setting, where technological change affects product prices. Trade is measured by the foreign outsourcing of intermediate inputs, while technological change is measured by expenditures on high-technology capital such as computers. The estimation procedure we develop, which modifies the conventional “price regression,” is able to distinguish whether product price changes are due to factor-biased versus sector-biased technology shifts. In our base specification we find that computers explain about 35 percent of the increase in the relative wage of nonproduction workers, while outsourcing explains 15 percent; both of these effects are higher in other specifications.
Feenstra et al. (Sun,) studied this question.