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Trade liberalization and wage inequality: Evidence from Chile

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  • Yoshimichi Murakami

Abstract

This study analyzes the impacts of further tariff reductions resulting from the proliferation of regional trade agreements on wage inequality between skilled and unskilled workers in Chile in the 2000s. I match panel data on industry-level effective tariff rates and other industry variables calculated from plant-level microdata to pooled individual cross-section data from national household surveys at the industry level. Based on this unique data set, I estimate the impacts of effective tariffs on workers’ wages directly in one stage. I find that a reduction in effective tariffs on final goods leads to an increase in industry wage and skill premiums. Moreover, the impact on the industry skill premiums is larger for skilled workers employed in large-sized firms. Therefore, the findings indicate that increased import competition due to reductions in output tariffs leads to skill upgrading within industries, thereby increasing demand for skilled workers. The results are robust to the possible endogeneity of effective tariffs and the inclusion of industry-level productivity.

Suggested Citation

  • Yoshimichi Murakami, 2021. "Trade liberalization and wage inequality: Evidence from Chile," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 30(3), pages 407-438, April.
  • Handle: RePEc:taf:jitecd:v:30:y:2021:i:3:p:407-438
    DOI: 10.1080/09638199.2020.1871502
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    More about this item

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F61 - International Economics - - Economic Impacts of Globalization - - - Microeconomic Impacts
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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