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Trade and the skill premium in developing countries: the role of intermediate goods and some evidence from Peru

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  • Joy Mazumdar
  • Myriam Quispe-Agnoli

Abstract

The rise in income inequality in developing countries after trade liberalization has been a puzzle for trade theory, which predicts the opposite effect. The authors present a model with imported intermediate goods in which the relative wages of skilled labor can rise due to higher imports of inputs or due to skill-biased technological change. The evidence from Peru in the post-liberalization phase in the early 1990s supports the skilled-biased technological change hypothesis. The authors find that most of the decrease in the blue-collar wage share in the manufacturing industries can be explained by the increase in machinery imports that followed liberalization, suggesting that the skilled-biased technology is embodied in imported machinery.

Suggested Citation

  • Joy Mazumdar & Myriam Quispe-Agnoli, 2002. "Trade and the skill premium in developing countries: the role of intermediate goods and some evidence from Peru," FRB Atlanta Working Paper 2002-11, Federal Reserve Bank of Atlanta.
  • Handle: RePEc:fip:fedawp:2002-11
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    References listed on IDEAS

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    7. Feenstra, Robert C. & Hanson, Gordon H., 1997. "Foreign direct investment and relative wages: Evidence from Mexico's maquiladoras," Journal of International Economics, Elsevier, vol. 42(3-4), pages 371-393, May.
    8. Donald R. Davis, 1996. "Trade Liberalization and Income Distribution," Harvard Institute of Economic Research Working Papers 1769, Harvard - Institute of Economic Research.
    9. Berman, Eli & Machin, Stephen, 2000. "Skill-Based Technology Transfer around the World," Oxford Review of Economic Policy, Oxford University Press, vol. 16(3), pages 12-22, Autumn.
    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. Eli Berman & John Bound & Zvi Griliches, 1994. "Changes in the Demand for Skilled Labor within U. S. Manufacturing: Evidence from the Annual Survey of Manufactures," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 367-397.
    12. Ronald W. Jones, 2000. "Globalization and the Theory of Input Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 026210086x, January.
    13. Stephen Machin & John Van Reenen, 1998. "Technology and Changes in Skill Structure: Evidence from Seven OECD Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 113(4), pages 1215-1244.
    14. Ronald W. Jones, 1965. "The Structure of Simple General Equilibrium Models," Journal of Political Economy, University of Chicago Press, vol. 73, pages 557-557.
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    Cited by:

    1. Monia Ghazali, 2010. "Trade Openness, Relative Demand of Skilled Workers and Technological Change in Tunisia, 1998–2002," Working Papers 554, Economic Research Forum, revised 10 Jan 2010.
    2. Anderson, Edward, 2005. "Openness and inequality in developing countries: A review of theory and recent evidence," World Development, Elsevier, vol. 33(7), pages 1045-1063, July.
    3. repec:dau:papers:123456789/12528 is not listed on IDEAS

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    Keywords

    Peru ; Economic development ; Latin America ; Trade;

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