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Trade, foreign investment, and wage inequality in developing countries

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  • Alessandro Cigno

    (University of Florence, Italy, and IZA, Germany)

Abstract

Liberalization of foreign trade and investment raises the domestic ratio of skilled to unskilled wages (skill premium) if the country has a sufficiently well-educated workforce, but lowers it otherwise. Wide wage inequality is undesirable on equity grounds, especially in poor countries where the bottom wage is close to the breadline; but it gives parents an incentive to invest in their children’s education. The incentive will be ineffective, however, if parents cannot borrow for their child’s education because of underdeveloped credit markets or because they are too poor to finance the investment from their own income and savings.

Suggested Citation

  • Alessandro Cigno, 2015. "Trade, foreign investment, and wage inequality in developing countries," IZA World of Labor, Institute of Labor Economics (IZA), pages 193-193, November.
    • Handle: RePEc:iza:izawol:journl:y:2015:n:193
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    trade openness; offshoring; skill endowments; skill premium;
    All these keywords.

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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