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Direction of trade and wage inequality

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  • Sherif Khalifa

Abstract

Contrary to the predictions of the 2×2×2 Heckscher-Ohlin model, empirical evidence shows that the skill premium increased in some developing countries and decreased in others after trade liberalization. Khalifa (2014) attempts to reconcile the empirical evidence with the theoretical predictions by introducing a theoretical set-up that includes the additional aspect of South-South trade. The model shows that South-South trade openness can cause the skill premium to increase in the Southern country that is relatively more skill abundant, and to decrease in the Southern country that is relatively less skill abundant. This article introduces an empirical analysis to test the theoretical predictions of Khalifa (2014) using threshold estimation techniques introduced by Hansen (1999). The results suggest the presence of a statistically significant skill abundance threshold, below which the estimate of the coefficient of the relationship between South-South trade openness and wage inequality is negative, and above which the point estimate is positive.

Suggested Citation

  • Sherif Khalifa, 2014. "Direction of trade and wage inequality," Applied Economics Letters, Taylor & Francis Journals, vol. 21(13), pages 898-901, September.
    • Handle: RePEc:taf:apeclt:v:21:y:2014:i:13:p:898-901
    DOI: 10.1080/13504851.2014.896976
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    1. Hansen, Bruce E., 1999. "Threshold effects in non-dynamic panels: Estimation, testing, and inference," Journal of Econometrics, Elsevier, vol. 93(2), pages 345-368, December.
    2. Kristin Forbes, 2001. "Skill classification does matter: estimating the relationship between trade flows and wage inequality," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 10(2), pages 175-209.
    3. Donald J. Robbins, 1996. "Evidence on Trade and Wages in the Developing World," OECD Development Centre Working Papers 119, OECD Publishing.
    4. Wood, Adrian, 1997. "Openness and Wage Inequality in Developing Countries: The Latin American Challenge to East Asian Conventional Wisdom," The World Bank Economic Review, World Bank, vol. 11(1), pages 33-57, January.
    5. Hanson, G.H. & Harrison, A., 1995. "Trade, Technology and Wage Inequality," Papers 95-20, Columbia - Graduate School of Business.
    6. Richard B. Freeman & Remco H. Oostendorp, 2002. "Wages Around the World: Pay across Occupations and Countries," International Economic Association Series, in: Richard B. Freeman (ed.), Inequality Around the World, chapter 2, pages 5-37, Palgrave Macmillan.
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    Cited by:

    1. Ribeiro, Ana Paula & Carvalho, Vitor & Ferreira, Mariana, 2020. "The effect of globalization on wage inequality: an application to the European Union before the Great Recession," MPRA Paper 110697, University Library of Munich, Germany.

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