Relative Factor Return Gaps in Labour Markets and Global Integration

Mamoon, Dawood (2007): Relative Factor Return Gaps in Labour Markets and Global Integration. Unpublished.

Abstract

We estimate the role of openness and integration in welfare generation in a cross country framework. Once controlling for institutions, openness is generally associated with increased wage inequalities across nations. However the results for trade policy are mixed. Decrease in import taxes increase wage inequality, whereas decrease in export taxes has an egalitarian effect. The results are applicable only to the larger sample of developed and developing countries. If the sample is restricted to developing countries, protection by means of export and import taxes is good for unskilled workers as higher trade taxes seem to put a downward pressure on the wage gaps between skilled and unskilled. The results highlight the bottle neck faced by both developing and developed countries in WTO talks which have not been successful as yet in terms of further decrease in trade taxes. In case this situation prevails, the paper calls for more South-South trade which would enable developing countries to decrease the relative wage gaps among their labour force.

• Item Type: MPRA Paper
• Institution: Institute of Social Studies
• Language: English
• Keywords: International Trade; Redistribution; Inequality; Cross Section Models
• Subjects: F - International Economics > F1 - Trade > F15 - Economic Integration; F - International Economics > F1 - Trade > F16 - Trade and Labor Market Interactions

References

Acemoglu, D., S. Johnson and J. A. Robinson (2001) ‘The Colonial Origins of Comparative Development: An Empirical Investigation,’ American Economic Review, 91, No. 5, pp. 1369-1401, http://emlab.berkeley.edu/users/chad/e236c_f04/ajr2001.pdf Aisbett, E. (2003) ‘Globalization, Poverty and Inequality: are the criticisms vague, vested, or valid?’ NBER Pre-Conference Paper, NBER Pre-Conference on Globalization, Poverty and Inequality Oct 24-25. Alcala, F. and A. Ciccone (2001) ‘Trade and Productivity,’ CEPR Discussion Paper No. 3095. Amann, E., N. Aslanidi, F. Nixon and B. Walters (2002) ‘Economic Growth and Poverty Alleviation: A reconsideration of Dollar and Kraay,’ Seminar paper, European Association of development Institutes, Ljubljana, Slovania.

Chong, A. and M. Gradstein (2004) ‘Inequality and Institutions,’ Inter-American Development Bank, Working Paper No. 506.

Dollar, D. and A. Kraay (2004) ‘Trade, Growth, and Poverty,’ Economic Journal, 114, pp. F22-F49.

Dollar, D. and A. Kraay (2003) ‘Institutions, Trade and Growth,’ Journal of Monetary Economics, 50 (1), pp. 133-162.

Easterly, W. (2004) ‘The Middle Class Consensus and Economic Development,’ Journal of Economic Growth, 6(4), pp. 317-336.

Edwards, S. (1998) ‘Openness, Productivity and Growth: What Do We Really Know?’ Economic Journal, 108, pp. 383-398.

Frankel, J. and D. Romer (1999) ‘Does Trade Cause Growth?’ American Economic Review, 89(3), pp. 379-399.

Galbraith, J. K. and H. Kum (2002) ‘Inequality and Economic Growth: Data Comparisons and Econometric Tests,’ UTIP Working paper No. 21, The University of Texas at Austin, 2002

Glaeser, E. L., R. La Porta,, F. Lopez-de-Silanes, and A. Shleifer (2004) ‘Explaining Growth: Institutions, Human Capital, and Leaders,’ (PD: Preliminary Draft) http://www.brook.edu/es/commentary/journals/bpea_macro/papers/20040325_glaeser.pdf

Greenaway, D., W. Morgan, and P. Wright (2001) ‘Trade Liberalisation and Growth in Developing Countries,’ Journal of Development Economics, 67, pp. 229-224.

Hall, R. E., and C. Jones (1999) ‘Why do Some Countries Produce So Much More Output per Worker than Others?’ Quaterly Journal of Economics, 114, pp. 83-116

Hanson, G. and A. Harrison (1999), ‘Trade and Wage Inequality in Mexico,’ Industrial and Labor Relations Review 52(2), pp. 271-288

Kaufman, D., A. Kraay and Z. Lobaton (2002) ‘Governance Matters II: Updated Indicators for 2000/01,’ Policy Research Working Paper 2772, The World Bank, http://www.worldbank.org/wbi/governance/pdf/govmatters2.pdf

Keefer, P. (2002) ‘Polarisation, Politics, and Property Rights: Links between Inequality and Growth,’ Public Choice, 111(1-2), pp. 127-54

Leamer, E. (1998) ‘In Search of Stolper-Samuelson Linkages between International Trade and Lower Wages,’ in Susan . Collins (ed), Import, Exports, and the American Worker, Washington, D.C. :Brookings Institution Press, pp. 141-202.

Mamoon, D., and S. M. Murshed (2005) ‘Are Institutions more important than Integration?’ Institute of Social Studies, Working Paper Series No. 416.

Milanovic, B., (2003) ‘The Two Faces of Globalization: Against Globalization as We Know It,’ World Development, 31(4), pp. 667-683.

Murshed, S. M., (2003) ‘Globalisation is not always good: An Economists Perspective,’ Tilburg Lustrum Conference 2003. www.wider.unu.edu/conference/conference-2003-3/conference-2003-3-papers/Murshed-0307.pdf-

Ravallion, M., (2003) ‘The Debate on Globalization, Poverty and Inequality: Why Measurement Matters,’ International Affairs, 79(4), 2003, 739-753

Rodrik, D., A. Subramanian and F. Trebbi (2004) ‘Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development,’ Journal of Economic Growth, 9(2), pp. 131-165

Rose, A., (2002) ‘Do WTO Members Have a More Liberal Trade Policy?’ NBER Working Paper 9347.

Sachs, J. D. and A. Warner (1995) ‘Economic Reform and Process of Global Integration,’ Brookings Papers on Economic Activity, Vol. 1, pp. 1-118

Sala-i-Martin, X., (2002) ‘The Disturbing “Rise” of Global Income Inequality,’ NBER Working Paper Series, No. w8904.

Sen, A., (2002) ‘Globalization and Poverty,’ Public lecture, Santa Clara University, California, 29 October.

Srinivasan, T.N., and J. Bhagwati (2002), Trade and Poverty in the Poor Countries.” AEA Papers and Proceedings 92 (2): 180-183.

Slaughetr, M.J., (2000) ‘What are the results of product-price studies and what can we learn from their differences?’ in R.C. Feenstra (ed.) The Impact of International Trade on Wages, Chicago, University of Chicago Press, pp. 129-165.

Vos, R., (2003) ‘Shocks, Adjustment and Growth Slowdown in Latin America in the 1990s,’ Economic research Seminar, Institute of Social Studies, Den Hague, The Netherlands.

World Bank, Washington,A globalized Market – Oppertunities and Risks for the Poor: Global Poverty Report 2001.

Wood, A. (1999) ‘Openness and Wage Inequality in Developing Countries: The latin American Challenege to East Asian Conventional Wisdom,’ in R.E. Baldwin, D. Cohen, A. Sapir and A. Venables (eds.), Market Integration, Regionalism and Global the Economy, Cambridge: Cambridge University Press.