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The Impact of Trade Liberalisation on Wage Inequality: Case of Pakistan

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  • Zara Salman

    (Department of Economics, School of Humanities, Social Sciences and Law, Lahore University of Management Sciences, Lahore)

  • Mariam Javed

    (Department of Economics, School of Humanities, Social Sciences and Law, Lahore University of Management Sciences, Lahore)

Abstract

This paper examines whether trade liberalisation played a role in shaping the wage structure of Pakistan in the late 1990s and early 2000. It uses manufacturing workers data from LFS supplemented by external information to analyse the impact of trade liberalisation. In general, the results show that trade liberalisation, measured through import penetration ratio, export penetration ratio and relative prices of each industry, not only impacted wages but also increased wage inequality across skill levels from 1996-97 to 2005-06. The econometrics analysis confirms that increase in import penetration raises skilled premium while simultaneously reducing unskilled premium; a result in contention with the findings of the Stolper-Sameulson Theorem.

Suggested Citation

  • Zara Salman & Mariam Javed, 2011. "The Impact of Trade Liberalisation on Wage Inequality: Case of Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 50(4), pages 575-595.
  • Handle: RePEc:pid:journl:v:50:y:2011:i:4:p:575-595
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    1. Hamish Low & Costas Meghir & Luigi Pistaferri, 2010. "Wage Risk and Employment Risk over the Life Cycle," American Economic Review, American Economic Association, vol. 100(4), pages 1432-1467, September.
    2. George Psacharopoulos & Harry Anthony Patrinos, 2004. "Returns to investment in education: a further update," Education Economics, Taylor & Francis Journals, vol. 12(2), pages 111-134.
    3. Luis Díaz-Serrano & Joop Hartog, 2006. "Is there a risk-return trade-off in educational choices? Evidence from Spain," Investigaciones Economicas, Fundación SEPI, vol. 30(2), pages 353-380, May.
    4. Christiansen, Charlotte & Joensen, Juanna Schroter & Nielsen, Helena Skyt, 2007. "The risk-return trade-off in human capital investment," Labour Economics, Elsevier, vol. 14(6), pages 971-986, December.
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