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Relative Factor Return Gaps in Labour Markets and Global Integration

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  • Mamoon, Dawood

Abstract

We estimate the role of openness and integration in welfare generation in a cross country framework. Once controlling for institutions, openness is generally associated with increased wage inequalities across nations. However the results for trade policy are mixed. Decrease in import taxes increase wage inequality, whereas decrease in export taxes has an egalitarian effect. The results are applicable only to the larger sample of developed and developing countries. If the sample is restricted to developing countries, protection by means of export and import taxes is good for unskilled workers as higher trade taxes seem to put a downward pressure on the wage gaps between skilled and unskilled. The results highlight the bottle neck faced by both developing and developed countries in WTO talks which have not been successful as yet in terms of further decrease in trade taxes. In case this situation prevails, the paper calls for more South-South trade which would enable developing countries to decrease the relative wage gaps among their labour force.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 3045.

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Date of creation: May 2007
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Handle: RePEc:pra:mprapa:3045

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Keywords: International Trade; Redistribution; Inequality; Cross Section Models;

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  1. Daron Acemoglu, 1999. "Patterns of Skill Premia," NBER Working Papers 7018, National Bureau of Economic Research, Inc.
  2. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2002. "Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development," NBER Working Papers 9305, National Bureau of Economic Research, Inc.
  3. Alberto Chong & Mark Gradstein, 2007. "Inequality and Institutions," The Review of Economics and Statistics, MIT Press, vol. 89(3), pages 454-465, August.
  4. Andrew K. Rose, 2002. "Do WTO Members have More Liberal Trade Policy?," NBER Working Papers 9347, National Bureau of Economic Research, Inc.
  5. Cragg, John G. & Donald, Stephen G., 1993. "Testing Identifiability and Specification in Instrumental Variable Models," Econometric Theory, Cambridge University Press, vol. 9(02), pages 222-240, April.
  6. Francisco Alcalá & Antonio Ciccone, 2001. "Trade and productivity," Economics Working Papers 580, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2002.
  7. Edwards, Sebastian, 1998. "Openness, Productivity and Growth: What Do We Really Know?," Economic Journal, Royal Economic Society, vol. 108(447), pages 383-98, March.
  8. Branko Milanovic, 2003. "The Two Faces Of Globalization: Against Globalization As We Know It," Development and Comp Systems 0303007, EconWPA.
  9. Gordon H. Hanson & Ann Harrison, 1999. "Trade liberalization and wage inequality in Mexico," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 52(2), pages 271-288, January.
  10. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output Per Worker Than Others?," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 83-116, February.
  11. Dollar, David & Kraay, Aart, 2003. "Institutions, trade, and growth," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 133-162, January.
  12. Mamoon, D. & Murshed, S.M., 2005. "Are institutions more important than integration?," ISS Working Papers - General Series 19177, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
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