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This dissertation examines the impact of increasing international trade on the skill premium and on welfare of different skill groups. Several growth models of creative destruction ( Schumpeterian models) are employed. The underlying mechanism is that increasing international trade creates a stronger incentive for firms to engage in skill-intensive innovation, driving the relative wage of skilled workers upwards. This basic mechanism is then enhanced by the possibility of unemployment. Moreover, horizontal foreign direct investment (FDI) is introduced. Finally, a non-tradables (or service) sector is incorporated because unskilled households consume relatively more tradables than skilled households do. In the presence of non-tradables, the increase in (real) wage inequality is smaller than without the additional sector. Computable general equilibrium (CGE) simulations test the models empirical relevance for European data.
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