Advanced Search
MyIDEAS: Login to save this paper or follow this series

Trade Liberalization and Rising Wage Inequality in Latin America: Reconciliation with HOS Theory

Contents:

Author Info

  • Manoj Atolia

    ()
    (Department of Economics, Florida State University)

Abstract

The paper puts forward the hypothesis that transitory effects of trade liberalization on wage inequality can differ from the long-run outcome based on the HOS theory. In cases where HOS theory predicts a decline in wage inequality in the long run, a temporary rise can occur due to (i) asymmetries in the speed of contraction in the import sector and expansion in other sectors, and (ii) capital-skill complementarity in production. Asymmetric contraction and expansion causes transitory capital accumulation that boosts the relative and the real wage of the skilled labor due to capital-skill complementarity. Although long-run HOS fundamentals are, therefore, dominated in short run by the transient effects arising due to capital-skill complementarity, the observed rise in wage inequality is, nevertheless, consistent with the HOS theory appropriately extended to a dynamic setting.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: ftp://econpapers.fsu.edu/RePEc/fsu/wpaper/wp2002_03_01.pdf
File Function: Revised version, 2006-02
Download Restriction: no

Bibliographic Info

Paper provided by Department of Economics, Florida State University in its series Working Papers with number wp2002_03_01.

as in new window
Length: 38
Date of creation: Mar 2002
Date of revision: Feb 2006
Handle: RePEc:fsu:wpaper:wp2002_03_01

Contact details of provider:
Postal: 246 Bellamy Building, Tallahassee, Florida 32306-2180
Phone: 850-644-5001
Fax: 644-4535
Web page: http://www.coss.fsu.edu/economics/
More information through EDIRC

Order Information:
Email:

Related research

Keywords: Wage Inequality; Trade Reform; HOS; Capital-Skill Complementarity; Dynamic Analysis;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Syrquin, Moshe & Chenery, Hollis, 1989. "Three decades of industrialization," MPRA Paper 32771, University Library of Munich, Germany.
  2. Esquivel, Gerardo & Rodriguez-Lopez, Jose Antonio, 2003. "Technology, trade, and wage inequality in Mexico before and after NAFTA," Journal of Development Economics, Elsevier, vol. 72(2), pages 543-565, December.
  3. Buffie,Edward F., 2001. "Trade Policy in Developing Countries," Cambridge Books, Cambridge University Press, number 9780521004268, April.
  4. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, December.
  5. Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, vol. 50(1), pages 213-24, January.
  6. Ronald W. Jones, 2000. "Globalization and the Theory of Input Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 026210086x, December.
  7. Robertson, Raymond, 2004. "Relative prices and wage inequality: evidence from Mexico," Journal of International Economics, Elsevier, vol. 64(2), pages 387-409, December.
  8. Ethier, Wilfred J., 1984. "Higher dimensional issues in trade theory," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 3, pages 131-184 Elsevier.
  9. Baer, Werner & da Fonseca, Manuel A. R. & Guilhoto, Joaquim J. M., 1987. "Structural changes in Brazil's industrial economy, 1960-1980," World Development, Elsevier, vol. 15(2), pages 275-286, February.
  10. Burstein, Ariel T. & Neves, Joao C. & Rebelo, Sergio, 2003. "Distribution costs and real exchange rate dynamics during exchange-rate-based stabilizations," Journal of Monetary Economics, Elsevier, vol. 50(6), pages 1189-1214, September.
  11. José M. Campa & Linda S. Goldberg & José M. González-Mínguez, 2005. "Exchange rate pass through to import prices in the euro area," Banco de Espa�a Working Papers 0538, Banco de Espa�a.
  12. Bacchetta, Philippe & van Wincoop, Eric, 2003. "Why do Consumer Prices React Less than Import Prices to Exchange Rates?," CEPR Discussion Papers 3702, C.E.P.R. Discussion Papers.
  13. Wood, Adrian, 1997. "Openness and Wage Inequality in Developing Countries: The Latin American Challenge to East Asian Conventional Wisdom," World Bank Economic Review, World Bank Group, vol. 11(1), pages 33-57, January.
  14. Hamid Faruqee & Dalia Hakura & Ehsan U. Choudhri, 2002. "Explaining the Exchange Rate Pass-Through in Different Prices," IMF Working Papers 02/224, International Monetary Fund.
  15. Berndt, Ernst R & Christensen, Laurits R, 1974. "Testing for the Existence of a Consistent Aggregate Index of Labor Inputs," American Economic Review, American Economic Association, vol. 64(3), pages 391-404, June.
  16. Pinelopi K. Goldberg & Nina Pavcnik, 2004. "Trade, Inequality, and Poverty: What Do We Know? Evidence from Recent Trade Liberalization Episodes in Developing Countries," NBER Working Papers 10593, National Bureau of Economic Research, Inc.
  17. Shafik, Nemat, 1990. "Modeling investment behavior in developing countries : an application to Egypt," Policy Research Working Paper Series 452, The World Bank.
  18. Blundell, Richard & Pashardes, Panos & Weber, Guglielmo, 1993. "What Do We Learn About Consumer Demand Patterns from Micro Data?," American Economic Review, American Economic Association, vol. 83(3), pages 570-97, June.
  19. Jones, Ronald W & Scheinkman, Jose A, 1977. "The Relevance of the Two-Sector Production Model in Trade Theory," Journal of Political Economy, University of Chicago Press, vol. 85(5), pages 909-35, October.
  20. Ronald W. Jones, 1965. "The Structure of Simple General Equilibrium Models," Journal of Political Economy, University of Chicago Press, vol. 73, pages 557.
  21. Anne O. Krueger, 1981. "Alternative Trade Strategies and Employment in LDCs: An Overview," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 20(3), pages 277-301.
  22. Claudio Loser & Martine Guerguil, 1999. "Trade and Trade Reform in Latin America and the Caribbean in the 1990s," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 61-96, May.
  23. Abel, Andrew B & Blanchard, Olivier J, 1986. "The Present Value of Profits and Cyclical Movements in Investment," Econometrica, Econometric Society, vol. 54(2), pages 249-73, March.
  24. Nina Pavcnik & Andreas Blom & Pinelopi Goldberg & Norbert Schady, 2004. "Trade Liberalization and Industry Wage Structure: Evidence from Brazil," World Bank Economic Review, World Bank Group, vol. 18(3), pages 319-344.
  25. Haltiwanger, John & Singh, Manisha, 1999. "Cross-Country Evidence on Public Sector Retrenchment," World Bank Economic Review, World Bank Group, vol. 13(1), pages 23-66, January.
  26. Per Krusell & Lee E. Ohanian & Jose-Victor Rios-Rull & Giovanni L. Violante, 1997. "Capital-skill complementarity and inequality: a macroeconomic analysis," Staff Report 239, Federal Reserve Bank of Minneapolis.
  27. Attanasio, Orazio & Goldberg, Pinelopi K. & Pavcnik, Nina, 2004. "Trade reforms and wage inequality in Colombia," Journal of Development Economics, Elsevier, vol. 74(2), pages 331-366, August.
  28. Masao Ogaki & Jonathan D. Ostry & Carmen M. Reinhart, 1996. "Saving Behavior in Low- and Middle-Income Developing Countries: A Comparison," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 38-71, March.
  29. Jose Manuel Campa & Linda S. Goldberg, 2002. "Exchange Rate Pass-Through into Import Prices: A Macro or Micro Phenomenon?," NBER Working Papers 8934, National Bureau of Economic Research, Inc.
  30. Malkiel, Burton G & von Furstenberg, George M & Watson, Harry S, 1979. "Expectations, Tobin's q, and Industry Investment," Journal of Finance, American Finance Association, vol. 34(2), pages 549-61, May.
  31. Pinelopi K. Goldberg & Michael M. Knetter, 1996. "Goods Prices and Exchange Rates: What Have We Learned?," NBER Working Papers 5862, National Bureau of Economic Research, Inc.
  32. Xu, Bin, 2003. "Trade liberalization, wage inequality, and endogenously determined nontraded goods," Journal of International Economics, Elsevier, vol. 60(2), pages 417-431, August.
  33. Zhu, Susan Chun & Trefler, Daniel, 2005. "Trade and inequality in developing countries: a general equilibrium analysis," Journal of International Economics, Elsevier, vol. 65(1), pages 21-48, January.
  34. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762, April.
  35. Ann Harrison & Gordon Hanson, 1999. "Who Gains from Trade Reform? Some Remaining Puzzles," NBER Working Papers 6915, National Bureau of Economic Research, Inc.
  36. Zadia M. Feliciano, 2001. "Workers and trade liberalization: The impact of trade reforms in Mexico on wages and employment," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 55(1), pages 95-115, October.
  37. Bussolo, Maurizio & Mizala, Alejandra & Romaguera, Pilar, 2002. "Beyond Heckscher-Ohlin: trade and labour market interactions in a case study for Chile," Journal of Policy Modeling, Elsevier, vol. 24(7-8), pages 639-666, November.
  38. Buffie,Edward F., 2001. "Trade Policy in Developing Countries," Cambridge Books, Cambridge University Press, number 9780521782234, April.
  39. Kijima, Yoko, 2006. "Why did wage inequality increase? Evidence from urban India 1983-99," Journal of Development Economics, Elsevier, vol. 81(1), pages 97-117, October.
  40. Fallon, P R & Layard, P R G, 1975. "Capital-Skill Complementarity, Income Distribution, and Output Accounting," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 279-301, April.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Gasparini, Leonardo & Galiani, Sebastian & Cruces, Guillermo & Acosta, Pablo, 2011. "Educational upgrading and returns to skills in Latin America : evidence from a supply-demand framework, 1990-2010," Policy Research Working Paper Series 5921, The World Bank.
  2. Szekely, Miguel & Samano, Claudia, 2012. "Did Trade Openness Affect Income Distribution in Latin America? Evidence for the years 1980.2010," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  3. Arslan Razmi, 2009. "Can the HOSS framework help shed light on the simultaneous growth of inequality and informalization in developing countries?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 145(2), pages 361-372, July.
  4. Leonardo Gasparini & Nora Lustig, 2011. "The Rise and Fall of Income Inequality in Latin America," Working Papers 1110, Tulane University, Department of Economics.
  5. Raymundo Campos & Gerado Esquivel & Nora Lustig, 2012. "The Rise and Fall of Income Inequality in Mexico, 1989-2010," Working Papers 1201, Tulane University, Department of Economics.
  6. Gerardo Esquivel, 2011. "The Dynamics of Income Inequality in Mexico since NAFTA," JOURNAL OF LACEA ECONOMIA, LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
  7. Manoj Atolia & Yoshinori Kurokawa, 2008. "Variety Trade and Skill Premium in a Calibrated General Equilibrium Model: The Case of Mexico," Working Papers wp2008_11_03, Department of Economics, Florida State University.
  8. Julian Emami Namini & Ricardo A. López, 2013. "Factor price overshooting with trade liberalization: theory and evidence," Scottish Journal of Political Economy, Scottish Economic Society, vol. 60(2), pages 139-181, 05.
  9. Sebastián Galiani & Guido Porto, 2011. "Trends in Tariff Reforms and Trends in the Structure of Wages," CEDLAS, Working Papers 0124, CEDLAS, Universidad Nacional de La Plata.
  10. Manoj Atolia, 2003. "Public Investment, Tax Evasion and Welfare Effects of a Tariff Reform," Working Papers wp2003_10_01, Department of Economics, Florida State University, revised Oct 2008.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:fsu:wpaper:wp2002_03_01. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dmitry Ryvkin).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.