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Labour Markets, Education and Duality of Returns

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  • Mamoon, Dawood
  • Murshed, S. Mansoob

Abstract

The aim of this paper is to examine the impact of increased trade on wage inequality in developing countries, and whether a higher human capital stock moderates this effect. We look at the skilled-unskilled wage differential. When better educated societies open up their economies, increased trade is likely to induce less inequality on impact because the supply of skills better matches demand. But greater international exposure also brings about technological diffusion, further raising skilled labour demand. This may raise wage inequality, in contrast to the initial egalitarian level effect of human capital. We attempt to measure these two opposing forces. We also employ a broad set of indicators to measure trade liberalization policies as well as general openness, which is an outcome, and not a policy variable. We further examine what type of education most reduces inequality. Our findings suggest that countries with a higher level of initial human capital do well on the inequality front, but human capital which accrues through the trade liberalization channel has inegalitarian effects. Our results also have implications for the speed at which trade policies are liberalized, the implication being that better educated nations should liberalize faster.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 29529.

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Date of creation: Mar 2011
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Handle: RePEc:pra:mprapa:29529

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Keywords: Integration; Trade Liberalization; Wage Inequality;

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  1. Francisco Alcalá & Antonio Ciccone, 2001. "Trade and productivity," Economics Working Papers 580, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2002.
  2. Dollar, David & Kraay, Aart, 2001. "Trade, growth, and poverty," Policy Research Working Paper Series 2615, The World Bank.
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  8. Teulings, Coen N & van Rens, Thijs, 2003. "Education, Growth and Income Inequality," CEPR Discussion Papers 3863, C.E.P.R. Discussion Papers.
  9. Wood, Adrian & Ridao-Cano, Cristobal, 1999. "Skill, Trade, and International Inequality," Oxford Economic Papers, Oxford University Press, vol. 51(1), pages 89-119, January.
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  13. Garcia-Penalosa, Cecilia & Aghion, Philippe & Caroli, Eve, 1999. "Inequality and Economic Growth: The Perspective of the New Growth Theories," Economics Papers from University Paris Dauphine 123456789/10091, Paris Dauphine University.
  14. Theo Eicher & Cecilia Garcia-Penalosa, 2000. "Inequality and Growth: The Dual Role of Human Capital in Development," Econometric Society World Congress 2000 Contributed Papers 1920, Econometric Society.
  15. Fischer, Ronald D., 2001. "The evolution of inequality after trade liberalization," Journal of Development Economics, Elsevier, vol. 66(2), pages 555-579, December.
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  17. Chen, Shaohua & Ravallion, Martin, 2003. "Household welfare impacts of China's accession to the World Trade Organization," Policy Research Working Paper Series 3040, The World Bank.
  18. L Alan Winters, 2004. "Trade Liberalisation and Economic Performance: An Overview," Economic Journal, Royal Economic Society, vol. 114(493), pages F4-F21, 02.
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