the years 1979-1986. Chile represents an interesting setting to study the relation between trade
liberalization and skill upgrading in developing countries since, between 1974 and 1979, most
non-tariff barriers were eliminated and tariff rates were reduced from more than 100% to 10%.
Following this drastic trade liberalization, from 1979 to 1986, the share of skilled workers in total
manufacturing employment increased by almost 17%, and the skill premium grew by more than
10%.
One possible explanation for these trends is the following. Falling trade and investment barriers
bring about a decrease in the relative price of imported technology in developing countries such
as Chile, thereby stimulating technology adoption.20 If the adoption of new technology is a skill-
intensive activity, then skill upgrading and rising skill premia may be closely linked to the trade-
induced process of technology advancement.
The data used by Pavcnik provide several plant-level variables to measure technology, such as
imported materials, expenditures on patent use and rights, and expenditures on foreign technical
assistance. All of these technology measures, together with new capital investment, show a dra-
matic increase in the period following trade liberalization. In order to test whether skill upgrading
in Chile was influenced by the process of technology adoption, Pavcnik partitions plants according
to whether or not they used imported materials (or received foreign technical assistance, or used
patented technology) in the years following the trade reform. She then studies the distribution of
the wage bill share of skilled workers (which proxies for plants’ skill-intensity) for the two groups
of plants. The results are striking: the distribution of the wage bill share of plants investing in new
technology is markedly right-skewed with respect to that of non-investing firms, which means that
the probability of observing a skill-intensive plant is much higher among plants investing in new
technology. This result suggests that technology adoption is a skill-biased activity, so that plants
endowed with a higher share of skilled workers invest more in new technology.
Pavcnik also performs a regression analysis which confirms that technology measures are pos-
20The evidence reported by Eaton and Kortum (1996) confirms that the international diffusion of technology is
significantly influenced by the degree of protectionism.
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