Trade Liberalization and Wage Inequality in Developing Countries
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Authors
Date
2023
Department
Major/Subject
Mcode
Degree programme
Bachelor’s programme in Economics
Language
en
Pages
24
Series
Abstract
The objective of this literature review is to study the relationship between trade liberalization, namely tariff reductions, and wage inequality in developing Latin American countries. I outline the traditional theoretical foundations of the Heckscher-Ohlin Model and Stolper-Samuelson theorem, which predicts that trade liberalization should result in decreasing wage inequalities in developing countries abundant in unskilled labor. I then turn to empirical papers on the topic, which show mixed results between developing countries regarding the impact of tariff reductions on wage inequality. The papers on Colombia and Argentina find that tariff reductions slightly contributed to increases in wage inequality, and the paper on Brazil finds that tariff reductions actually decreased wage inequality. The effect of tariff reductions on wage inequality is deemed to not be a preeminent factor contributing to increased wage inequality in the developing countries studied. The results suggest low external validity.Description
Thesis advisor
Stryjan, MiriKeywords
trade liberalization, tariff reductions, wage inequality, skill premium