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Journal article
Trapped Factors and China’s Impact on Global Growth
Nicholas Bloom, Paul Romer, Stephen Terry and John Van Reenen
January 2020
Paper No' :

Tags: employment; unemployment; wages; intergenerational income distribution; aggregate human capital; aggregate labor productivity; education and economic developmentj; human capital; skills; occupational choice; labor productivity; human resources; human de

After a recent increase in Chinese import competition, European firms increased innovation. We present and rationalise these patterns using ‘trapped factors’ at the micro level within a stylised equilibrium model of product-cycle trade and growth. Trade integration of the magnitude observed between the OECD and low-wage nations as a whole can considerably increase the long-run growth rate and welfare. In the short run exposed firms devote trapped factors to increased innovation, leading both to increased innovation at these individual firms as well as to a small amount of extra transitional growth overall. China accounts for half of the dynamic trade gains.