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Trade, Wages And Skill Accumulation In The Emerging Giants

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  • Richard G. Harris

    (Department of Economics, Simon Fraser University)

  • Peter Robertson

    (UWA Business School, The University of Western Australia)

Abstract

A pervasive result in the empirical “trade-wage” literature is that liberalization is associated with rising skill premiums in developing economies. Though this represents a puzzle in the context of static Heckscher-Ohlin models, the dynamic effects of trade liberalization have received little attention. To investigate these dynamic effects of trade-liberalization on the skill premium, we quantify the effect of unanticipated trade liberalization on the entire transition path of an economy, using China and India as examples. On impact trade liberalization is shown to generate large jumps in investment, education demand, and the skill premium. The path of the skill premium is also shown to be non-monotonic and changes sign over the transition. The results are shown to depend on Mincerian on-the job training costs and the degree of capital-skill complementarity. As well as providing an explanation for the skill-premium puzzle in developing economies, the results also show that trade liberalization in India and China is “pro-poor”, in that it generates strong wage growth for both skilled and unskilled labor.

Suggested Citation

  • Richard G. Harris & Peter Robertson, 2009. "Trade, Wages And Skill Accumulation In The Emerging Giants," Economics Discussion / Working Papers 09-19, The University of Western Australia, Department of Economics.
    • Handle: RePEc:uwa:wpaper:09-19
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    3. Ian Coxhead & Rashesh Shrestha, 2017. "Globalization and School–Work Choices in an Emerging Economy: Vietnam," Asian Economic Papers, MIT Press, vol. 16(2), pages 28-45, Summer.
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    8. Paul De Grauwe & Zhaoyong Zhang & Rod Tyers, 2016. "Slower Growth and Vulnerability to Recession: Updating China's Global Impact," Scottish Journal of Political Economy, Scottish Economic Society, vol. 63(1), pages 66-88, February.
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    12. Jane Golley & Rod Tyers & Yixiao Zhou, 2016. "Contractions in Chinese Fertility and Savings: Long-run Domestic and Global Implications," RBA Annual Conference Volume (Discontinued), in: Iris Day & John Simon (ed.),Structural Change in China: Implications for Australia and the World, Reserve Bank of Australia.
    13. Song, Tao & Cieslik, Andrzej, 2020. "The effects of free trade agreements on regional wages in China," Economic Systems, Elsevier, vol. 44(3).
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    15. Ma, Xiao & Nakab, Alejandro & Zhang, Yiran, 2023. "Skill Acquisition and the Gains from Trade: A Cross-country Quantitative Analysis," MPRA Paper 117808, University Library of Munich, Germany.
    16. Sang‐Wook (Stanley) Cho & Julián P. Díaz, 2016. "Accounting for Skill Premium Patterns: Evidence from the EU Accession," Southern Economic Journal, John Wiley & Sons, vol. 83(1), pages 271-299, July.
    17. Falvey, Rod & Greenaway, David & Silva, Joana, 2010. "Trade liberalisation and human capital adjustment," Journal of International Economics, Elsevier, vol. 81(2), pages 230-239, July.
    18. Shiyang Li & Huasheng Zhu, 2020. "Agglomeration Externalities and Skill Upgrading in Local Labor Markets: Evidence from Prefecture-Level Cities of China," Sustainability, MDPI, vol. 12(16), pages 1-15, August.
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    More about this item

    Keywords

    Economic Growth; Intentional Trade; Skill Premium; Human Capital; Wage Inequality.;
    All these keywords.

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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