Trade, wages and skill accumulation in the emerging giants

Concerns over rising inequality have threatened to slow the process of trade liberalization in emerging economies, such as China and India. But even if trade liberalization raises inequality, these effects may be short lived and associated with important dynamic effects such as capital and skill acc...

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Veröffentlicht in:Journal of international economics 2013-03, Vol.89 (2), p.407-421
Hauptverfasser: Harris, Richard G., Robertson, Peter E.
Format: Artikel
Sprache:eng
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Zusammenfassung:Concerns over rising inequality have threatened to slow the process of trade liberalization in emerging economies, such as China and India. But even if trade liberalization raises inequality, these effects may be short lived and associated with important dynamic effects such as capital and skill accumulation. Using a simple dynamic open economy model we show that trade liberalization can induce substantial human capital accumulation, and that the transition path for the skill premium can be non-monotonic. We then consider a higher dimensional version of the model which is calibrated to data for China and India. In both cases trade liberalization generates a jump in the skill premium on impact, and a fall in the long run. It also generates strong wage growth for both skilled and unskilled labor and substantial accumulation of skilled labor. ► We quantify the full transition path of an economy, following trade-liberalization. ► Calibrated simulations are undertaken for China and India. ► In both countries the skill premium rises on impact but falls in the long run. ► Tariff reductions can also generate significant human capital accumulation. ► Trade liberalization generates “pro-poor” growth in both countries.
ISSN:0022-1996
1873-0353
DOI:10.1016/j.jinteco.2012.08.011