Transcript The impact of trade liberalization on wage inequality in developing

The impact of trade liberalization on wage
inequality in developing countries: Some
realities in China
First Presentation
Duan Xiaojing
Surpervisor: Univ. Prof. Dr. Joseph
Francois
Motivation
 Equity is a central issue in economics,
sociology and politics
 Globalization & Liberalization around the world
 Sharply increase in income inequality in
developing countries
 China as a typical example,which has
experienced widening wage gap in recent
decades
Research Questions
 What is the relationship between trade
liberalization and wage inequality in
developing countries (China)?
 Besides trade liberalization, are there other
reasons lead to China’s widening wage gap?
Structure
 Introduction
 Literature review
 Theoretical background
Heckscher-Ohlin / Stolper-Samuelson theorem
Kuznets inverted U-Curve
 Trade Liberalization and wage inequality in developing
countries
 China’s wage inequality
 A cross-section approach to this research
 Conclusion
HO/SS Model
Heckscher-Ohlin Model
“Given the assumptions of the model, a country
will export the commodity that intensively uses
its relatively abundant factor” (Markusen et.al,
1995)
Stolper-Samuelson Effect
Trade liberalization would raise the price of
developing countries’ abundant factor
(unskilled-labor), thus reducing the skilled
wage premium and wage inequality (Markusen
et.al, 1995)
Kuznets U Curve
 “The Kuznets’s inverted U-Curve hypothesis is
that inequalities first rise with the onset of
economic growth, eventually level off over time,
then begin to fall in advanced stages of
development-thus the growth-equity
relationship is characterized by a trajectory in
the shape of an inverted U” (Kuznets 1995)
Trade Liberalization in
developing countries
China (1978-2008)
 Economic reform from 1978
 Open-door Policy
 China’s WTO Accession
Experiences of some other developing countries
such as Costa Rica (Robbins and Gindling 1999),Chile
(Beyer et al. 1999), Mexico (Hanson and Harrison
1999), etc.
Change of China’s inequality
 Gini coefficient
0.30 in 1978; 0.44 in 2005 (Chen et.al 2008)
 urban and rural income ratio increased from 2.1 in
1988 to 3.2 in 2005 (Jin 2007)
 Inequality between regions
inland regions VS coastal regions
China’s wage inequality
Other Reasons of Wage
Inequality in China
 Chinese labor mobility restriction
 Foreign Direction Investment
 Diffusion of skilled-biased technologies
from developed countries
 Government’s policies
A Cross-section Regression
According to Carol Liwin (1998):
Dependent variable: Gini
Independent variable: GDP per capita, GDP per
capita squared, Open, URB, INFRSTR, Xm/ Xp,
min,etc.
Open…(export+import)/GDP; URB…percentage of the population residing
in urban areas; INFRSTR…Km roads/population above 15 years of age;
Xm/ Xp… Manufacturing exports/Agricultural primary exports;
min…Mineral, ores and oil exports/GDP