Trade and the Skill-Bias - it's Not How Much, But with Whom, You Trade

This paper tests the hypothesis that an increase in US trade with countries with weak effectiveness in the protection of intellectual property (IP) has expanded the threat of competitive imitation of US firms, and has contributed to the skill deepening of the 1980s. We draw on Thoenig and Verdier's (2003) theory that a rise in the threat of competitive imitation promotes skill-biased strategies and technologies, which are less likely to be imitated. We construct an index of the effectiveness of IP protection at the country level, combining data on the statutory protection of intellectual property rights and the rule of law (as a proxy for enforcement). From the country-specific index, we construct an industry-specific version of this index, using as weights each country's trade share in the total trade of industry. In a cross-industry difference regression, we find that changes in this variable explain 34% of the rise in within-industry skill intensity