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First Presentation Duan Xiaojing Surpervisor: Univ. Prof. Dr. Joseph Francois

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. Motivation. Equity is a central issue in economics, sociology and politics

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First Presentation Duan Xiaojing Surpervisor: Univ. Prof. Dr. Joseph Francois

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  1. 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

  2. Motivation • 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

  3. Research Questions • 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?

  4. Structure • 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

  5. HO/SS Model 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)

  6. Kuznets U Curve • “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)

  7. Trade Liberalization in developing countries 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.

  8. Change of China’s inequality • 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

  9. China’s wage inequality

  10. Other Reasons of Wage Inequality in China • Chinese labor mobility restriction • Foreign Direction Investment • Diffusion of skilled-biased technologies from developed countries • Government’s policies

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

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