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Product Quality, Wage Inequality, and Trade Liberalization

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  • Yan Ma
  • Fumio Dei

Abstract

This paper constructs what we call a quality‐differentiation model of Chinese trade. This model captures some salient features of Chinese trade and allows us to analyze the impact of trade liberalization on wage inequality. At present, Chinese trade displays the following features: high‐quality cars are imported and low‐quality cars are produced and consumed domestically, for which some parts are imported. These features lead us to consider trade liberalization as two types of tariff reduction: namely, a tariff reduction on final quality‐differentiated goods and a tariff reduction on intermediate goods. This study shows that the two types of tariff reduction have completely different effects on wage inequality. Moreover, the results show that welfare inequality and wage inequality change in opposite directions when the tariff on final quality‐differentiated goods is reduced.

Suggested Citation

  • Yan Ma & Fumio Dei, 2009. "Product Quality, Wage Inequality, and Trade Liberalization," Review of International Economics, Wiley Blackwell, vol. 17(2), pages 244-260, May.
    • Handle: RePEc:bla:reviec:v:17:y:2009:i:2:p:244-260
    DOI: 10.1111/j.1467-9396.2009.00821.x
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    Cited by:

    1. Makoto Yano & Takashi Komatsubara, 2014. "Participation of Ordinary Investors and Stock Market Quality: A Comparison between Japanese and US Markets," Pacific Economic Review, Wiley Blackwell, vol. 19(5), pages 537-558, December.
    2. Yao Liu & Arijit Mukherjee, 2013. "The Effects of Trade Liberalization in a Vertical Structure," Review of International Economics, Wiley Blackwell, vol. 21(5), pages 966-973, November.
    3. Hrushikesh Mallick & Mantu Kumar Mahalik & Hemachandra Padhan, 2020. "Does globalization exacerbate income inequality in two largest emerging economies? The role of FDI and remittances inflows," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 67(4), pages 443-480, December.
    4. Shrimoyee Ganguly & Rajat Acharyya, 2024. "Money, exchange rate and export quality," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 33(1), pages 118-144, January.
    5. Miao, Zhuang & Li, Yifan & Duan, Sisong, 2020. "Income inequality of destination countries and trade patterns: Evidence from Chinese firm-level data," MPRA Paper 99441, University Library of Munich, Germany.
    6. Shrimoyee Ganguly & Rajat Acharyya, 2021. "Trade liberalization, export quality, and three dimensions of wage inequality," Review of Development Economics, Wiley Blackwell, vol. 25(4), pages 2157-2179, November.
    7. repec:iad:wpaper:0120 is not listed on IDEAS
    8. Takuma Kunieda & Akihisa Shibata, 2014. "Credit Market Imperfections and Macroeconomic Instability," Pacific Economic Review, Wiley Blackwell, vol. 19(5), pages 592-611, December.
    9. Jalil, Abdul, 2012. "Modeling income inequality and openness in the framework of Kuznets curve: New evidence from China," Economic Modelling, Elsevier, vol. 29(2), pages 309-315.

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