Trade liberalisation and wages in developing countries

This paper reviews the effects of trade liberalisation on wages in developing countries, and presents new evidence for Brazil. Wages fell substantially in the traded sector after trade lib-eralisation, consistent with there being reduced rents as industries faced greater competition. After trade liberalisation there was an increase in the marginal returns to college education. Within the traded sector, the impact of increasing openness on wages was insignificant for those in the top two education groups but negative for lower level education groups. These findings are consistent with the hypothesis that imported technology raised the relative de-mand for highly skilled labour. It is widely maintained that one of the causes of the growth of wage inequality in many industrialised countries is a change in the relative demand for skilled workers (Freeman, 1995; Gottschalk and Smeeding, 1997; De Santis, 2002; Acemoglu, 2003). There is little agreement, however, about the underlying causes of the change in the structure of labour demand. Some empirical evidence shows a relationship between an increase in international trade, wage dispersion and the level of employment, which has led a number of economists to conclude tha