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Trade and Wage Inequality in Developing Countries: South-South Trade Matters

Gourdon, Julien (2007): Trade and Wage Inequality in Developing Countries: South-South Trade Matters.

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The relationship between trade liberalization and inequality has received considerable attention in recent years. The first purpose of this paper is to present new results on the sources of wage inequalities in manufacturing taking into account South-South (S-S) trade. Globalization not only leads to increasing North-South (N-S) trade, but the direction and composition of trade has also changed. More trade is carried out between developing countries. We observe that increasing wage inequality is associated more to the South-South trade liberalization than to the classical trade liberalization with northern countries. A part of this increasing wage inequality due to S-S trade comes from the development of N-S trade relationship in S-S trade which increases wage inequality in middle income developing countries. The second purpose is to elucidate the link between the direction of trade and technological change. We explore the fact that S-S trade leads more to a technological change biased toward skill intensive sector. This increases wage inequality for all developing countries. This indirect effect is more important in low income countries.

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