IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Trade liberalization and rising wage inequality in Latin America: Reconciliation with HOS theory

  • Atolia, Manoj

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.

(This abstract was borrowed from another version of this item.)

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: http://www.sciencedirect.com/science/article/B6V6D-4M63RYX-2/2/debc917e3ced53c354978f756e9f51a4
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 71 (2007)
Issue (Month): 2 (April)
Pages: 467-494

as
in new window

Handle: RePEc:eee:inecon:v:71:y:2007:i:2:p:467-494
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

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. 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.
  2. de Melo, Jaime A P, 1977. "Distortions in the Factor Market: Some General Equilibrium Estimates," The Review of Economics and Statistics, MIT Press, vol. 59(4), pages 398-405, November.
  3. Philippe Bacchetta & Eric van Wincoop, 2002. "Why Do Consumer Prices React less than Import Prices to Exchange Rates?," NBER Working Papers 9352, National Bureau of Economic Research, Inc.
  4. Xu, Bin, 2003. "Trade liberalization, wage inequality, and endogenously determined nontraded goods," Journal of International Economics, Elsevier, vol. 60(2), pages 417-431, August.
  5. Campa, Jose M. & Goldberg, Linda S. & Gonzalez-Minguez, Jose M., 2005. "Exchange-rate pass-through to import prices in the euro area," IESE Research Papers D/609, IESE Business School.
  6. 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.
  7. Shafik, Nemat, 1990. "Modeling investment behavior in developing countries : an application to Egypt," Policy Research Working Paper Series 452, The World Bank.
  8. Choudhri, Ehsan U. & Faruqee, Hamid & Hakura, Dalia S., 2005. "Explaining the exchange rate pass-through in different prices," Journal of International Economics, Elsevier, vol. 65(2), pages 349-374, March.
  9. Orazio Attanasio & Pinelopi Goldberg & Nina Pavcnik, 2003. "Trade Reforms and Wage Inequiality in Colombia," NBER Working Papers 9830, National Bureau of Economic Research, Inc.
  10. Per Krusell & Lee E. Ohanian & JosÈ-Victor RÌos-Rull & Giovanni L. Violante, 2000. "Capital-Skill Complementarity and Inequality: A Macroeconomic Analysis," Econometrica, Econometric Society, vol. 68(5), pages 1029-1054, September.
  11. 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.
  12. 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.
  13. 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.
  14. 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.
  15. Reinhart, Carmen & Ogaki, Masao & Ostry, Jonathan, 1996. "Saving Behavior in Low- and Middle-Income Developing Countries: A Comparison," MPRA Paper 6978, University Library of Munich, Germany.
  16. Mauricio Bussolo & Alejandra Mizala & Pilar Romaguera, 1998. "Beyond Heckscher-Ohlin: Trade and labour market interaction in a case study for Chile," WORKING PAPERS SERIES. DOCUMENTOS DE TRABAJO 009202, FEDESARROLLO.
  17. repec:cup:cbooks:9780521296762 is not listed on IDEAS
  18. repec:cup:cbooks:9780521782234 is not listed on IDEAS
  19. Ariel T. Burstein & Joao C. Neves & Sergio Rebelo, 2000. "Distribution Costs and Real Exchange Rate Dynamics During Exchange-Rate-Based-Stabilizations," NBER Working Papers 7862, National Bureau of Economic Research, Inc.
  20. Robertson, Raymond, 2004. "Relative prices and wage inequality: evidence from Mexico," Journal of International Economics, Elsevier, vol. 64(2), pages 387-409, December.
  21. Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, vol. 50(1), pages 213-24, January.
  22. Ann Harrison & Gordon Hanson, 1999. "Who Gains from Trade Reform? Some Remaining Puzzles," NBER Working Papers 6915, National Bureau of Economic Research, Inc.
  23. 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.
  24. Ronald W. Jones, 1965. "The Structure of Simple General Equilibrium Models," Journal of Political Economy, University of Chicago Press, vol. 73, pages 557.
  25. 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.
  26. 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.
  27. 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.
  28. repec:cup:cbooks:9780521004268 is not listed on IDEAS
  29. 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.
  30. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, June.
  31. 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.
  32. Pinelopi Koujianou Goldberg & Michael M. Knetter, 1997. "Goods Prices and Exchange Rates: What Have We Learned?," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1243-1272, September.
  33. 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.
  34. Ronald W. Jones, 2000. "Globalization and the Theory of Input Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 026210086x, June.
  35. 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.
  36. Syrquin, Moshe & Chenery, Hollis, 1989. "Three decades of industrialization," MPRA Paper 32771, University Library of Munich, Germany.
  37. 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.
  38. 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.
  39. 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.
  40. 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.
  41. 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.
Full references (including those not matched with items on IDEAS)

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

When requesting a correction, please mention this item's handle: RePEc:eee:inecon:v:71:y:2007:i:2:p:467-494. 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: (Zhang, Lei)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.