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

 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

 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?

 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

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)

 “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)

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.

 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

 Chinese labor mobility restriction
 Foreign Direction Investment
 Diffusion of skilled-biased technologies from developed countries
 Government’s policies

According to Carol Liwin (1998):
Dependent variable : Gini
Independent variable : GDP per capita, GDP per capita squared, Open, URB, INFRSTR, X m / X p, min,etc.
Open…(export+import)/GDP; URB…percentage of the population residing in urban areas; INFRSTR…Km roads/population above 15 years of age;
X m / X p … Manufacturing exports/Agricultural primary exports; min…Mineral, ores and oil exports/GDP