Trade and Inequality in Developing Countries: An Empirical Assessment (original) (raw)
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Trade and inequality in developing countries: a general equilibrium analysis
Journal of International Economics, 2005
Developing and newly industrialized countries that have experienced the sharpest increases in wage inequality are those whose export shares have shifted towards more skill-intensive goods. We argue that this can be explained by technological catch-up. We develop this insight using a model that features both Ricardian and endowments-based comparative advantage. In this model, Southern catch-up causes production of the least skill-intensive Northern goods to migrate South (where they become the most skill-intensive Southern goods). This raises wage inequality in both the South and the North. We provide empirical evidence that strongly supports this causal mechanism: Southern catch-up exacerbates Southern inequality by redirecting Southern export shares towards more skillintensive goods. D
Trade and Wage Inequality in Developing Countries
Economic Inquiry, 2004
The relationship between trade liberalization and inequality has received considerable attention in recent years. The primary purpose of this paper is to present new results on the sources of wage inequalities in manufacturing taking into account South-South (S-S) trade. Globalization not only leads to increasing North-South (N-S) trade, but the direction and composition of trade has also changed. More trade is carried out between developing countries. We observe increasing wage inequality is more due to the South-South trade liberalization than to the classical trade liberalization with northern countries. The second purpose is to elucidate the link between the direction of trade and technological change, arguing that it might explain why we obtain different results for South-South trade and North-South trade on wage inequality. A part of this increasing wage inequality due to S-S trade comes from the development of N-S trade relationship in S-S trade which increases wage inequality in middle income developing countries. However the fact that S-S trade is more skill intensive sector oriented increase wage inequality for all developing countries.
Trade and Wage Inequality in Developing Countries: South-South Trade Matters
Mpra Paper, 2007
The relationship between trade liberalization and inequality has received considerable attention in recent years. The primary purpose of this paper is to present new results on the sources of wage inequalities in manufacturing taking into account South-South (S-S) trade. Globalization not only leads to increasing North-South (N-S) trade, but the direction and composition of trade has also changed. More trade is carried out between developing countries. We observe increasing wage inequality is more due to the South-South trade liberalization than to the classical trade liberalization with northern countries. The second purpose is to elucidate the link between the direction of trade and technological change, arguing that it might explain why we obtain different results for South-South trade and North-South trade on wage inequality. A part of this increasing wage inequality due to S-S trade comes from the development of N-S trade relationship in S-S trade which increases wage inequality in middle income developing countries. However the fact that S-S trade is more skill intensive sector oriented increase wage inequality for all developing countries.
Wage inequality in developing countries: South–South trade matters
International Review of Economics, 2011
The relationship between trade liberalization and inequality has received considerable attention in recent years. The primary purpose of this paper is to present new results on the sources of wage inequalities in manufacturing taking into account South-South (S-S) trade. Globalization not only leads to increasing North-South (N-S) trade, but the direction and composition of trade has also changed. More trade is carried out between developing countries. We observe increasing wage inequality is more due to the South-South trade liberalization than to the classical trade liberalization with northern countries. The second purpose is to elucidate the link between the direction of trade and technological change, arguing that it might explain why we obtain different results for South-South trade and North-South trade on wage inequality. A part of this increasing wage inequality due to S-S trade comes from the development of N-S trade relationship in S-S trade which increases wage inequality in middle income developing countries. However the fact that S-S trade is more skill intensive sector oriented increase wage inequality for all developing countries.
Trade and Wage Inequality in Developing Countries: South-South Trade Matter
2011
The relationship between trade liberalization and inequality has received considerable attention in recent years. The primary purpose of this paper is to present new results on the sources of wage inequalities in manufacturing taking into account South-South (S-S) trade. Globalization not only leads to increasing North-South (N-S) trade, but the direction and composition of trade has also changed. More trade
Skill-biased technological change and wage inequality in a developing country
2006
Developing countries adopt technologies by purchasing licences from technology leaders. If skilled and unskilled labour are perfect substitutes, we show tehnological change is skill-biased in the South simply because it is in the North, resulting in permanently rising wage inequality in the South. We model expanded educational access as producing relatively educated new cohorts of labour market entrants. This makes the market for skill-biased technologies more attractive, which generates accelerated wage inequality, but this is ultimately a levels e¤ect. Allowing for skilled and unskilled labour to be imperfect substitutes suggests the elasticity of substitution ( ) would have to be far higher for a rise in skill supply to raise wage inequality than for Northern skill-biased technological change to do so. Estimates of suggest expanded educational access is unlikely to increase wage inequality and it is more likely that global technology patterns will do so. The predictions of the mo...
Working Paper
The rise in income inequality in developing countries after trade liberalization has been a puzzle for trade theory, which predicts the opposite effect. The authors present a model with imported intermediate goods in which the relative wages of skilled labor can rise due to higher imports of inputs or due to skill-biased technological change. The evidence from Peru in the post-liberalization phase in the early 1990s supports the skilled-biased technological change hypothesis. The authors find that most of the decrease in the blue-collar wage share in the manufacturing industries can be explained by the increase in machinery imports that followed liberalization, suggesting that the skilled-biased technology is embodied in imported machinery.
Trade and Income Inequality in Developing Countries
World Development, 2009
We use a dynamic specification to estimate the impact of trade on within-country income inequality in a sample of 65 developing countries (DCs) over the 1980-1999 period. Our results suggest that trade with high income countries worsen income distribution in DCs, both through imports and exports. These findings provide support to the hypothesis that technological differentials and the skill biased nature of new technologies may be important factors in shaping the distributive effects of trade. Moreover, we observe that the previous results only hold for middle income countries (MICs); we interpret this evidence by considering the greater potential for technological upgrading in MICs. we wish to thank the discussant Paolo Piacentini and all the participants for their useful comments and suggestions. Precious insights by Mariacristina Piva and Gianluca Grimalda are also gratefully acknowledged. Finally, comments and suggestions by four anonymous referees were very useful for improving the submitted version of this paper. Usual caveats apply.
The endogenous skill bias of technical change and wage inequality in developing countries
The Journal of International Trade & Economic Development, 2016
This paper draws on existing empirical literature and an original theoretical model to argue that technical change does not have to be skill-biased in developing countries. Instead, the extent to which technology adoption in developing countries favors skilled workers depends on a number of factors. Free trade induces technology that favors skilled workers in skill-abundant developing countries and that favors unskilled workers in skill-scarce developing countries, and therefore amplifies the predicted wage effects of trade liberalization. Developing countries experience technical change that is skillbiased when imported skill-biased technologies become relatively cheaper. Increased skill supply further biases technical change in favor of skilled labor. These features aid our understanding of the observed rises in inequality within developing countries, the absence of a significant downward effect of expanded educational attainment on skill premia, and the differential effects of trade liberalization on inequality.
Effects of North–South trade on wage inequality and on human-capital accumulation
Economic Modelling, 2013
This paper develops an endogenous growth model with technological knowledge directed towards high-versus low-skilled labour, augmented with North-South international trade of intermediate goods and with humancapital accumulation, to analyse how trade affects wage inequality and the inter-country human-capital gap. Trade is a vehicle for inter-country technological-knowledge diffusion and human-capital accumulation interacts with the intra-country direction of technological knowledge arising from trade. In contrast with the market-size effect, stressed in the skill-biased technological change literature, the operation of the price channel following openness to trade predicts, in line with the recent trends in developed and developing countries, an increasing technological-knowledge bias towards high-skilled human capital. This, in turn, decreases inter-country gaps of technological knowledge and human capital and increases intra-country wage inequality. Also in line with recent empirical evidence, inter-country wage convergence is induced by the trade-opening level effect.