Trade and the skill premium in developing countries: the role of intermediate goods and some evidence from Peru

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Trade and the skill premium in developing countries: the role of intermediate goods and some evidence from Peru

Author Info

Joy Mazumdar
Myriam Quispe-Agnoli

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Myriam J. Quispe-Agnoli

Abstract

The rise in income inequality in developing countries after trade liberalization has been a puzzle for trade theory, which predicts the opposite effect. The authors present a model with imported intermediate goods in which the relative wages of skilled labor can rise due to higher imports of inputs or due to skill-biased technological change. The evidence from Peru in the post-liberalization phase in the early 1990s supports the skilled-biased technological change hypothesis. The authors find that most of the decrease in the blue-collar wage share in the manufacturing industries can be explained by the increase in machinery imports that followed liberalization, suggesting that the skilled-biased technology is embodied in imported machinery.

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Paper provided by Federal Reserve Bank of Atlanta in its series Working Paper with number 2002-11.

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Date of creation: 2002
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Handle: RePEc:fip:fedawp:2002-11

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Other versions:
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