Munich Personal RePEc Archive

Why International Trade Cause Inequality in Developing Countries

Mamoon, Dawood (2017): Why International Trade Cause Inequality in Developing Countries.

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Abstract

The recent evidence of rising wage inequalities in developing countries in favour of skilled labor has challenged the Hecksher-Ohlin model. After providing empirical evidence by employing 28 measures of trade integration that trade significantly cause inequality, the paper carries out a theoretical discussion to suggest that wage inequality between skilled and unskilled labor has factor endowment dimension. There are significant inequalities in education attainment in developing countries that exacerbate inequality when these countries trade in international markets in predominantly capital intensive products. A more trade among developing countries might benefit the unskilled as trade in local or regional clusters within the South may enable these countries to also export more labor intensive products and thus benefitting the unskilled.

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