Trade Liberalisation and Wages in Developing Countries

This paper first reviews theoretical and empirical studies of the effects of trade liberalisation on wages in developing countries. It then presents new evidence for the case of Brazil which experienced a period of rapid trade liberalisation at the beginning of the 1990s. Conditional on education and work experience, we find that wages fell substantially in the traded sector after trade liberalisation. This is consistent with there being reduced rents as industries faced greater competition. Conditional wages also fell, though by a smaller amount, in the non-traded sector, possibly reflecting spill-over effects. However, due to increasing education levels, there was little overall change in the average wage level for the whole economy. Averaged over the whole post-liberalisation period, 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, following trade liberalisation, imported technology raises the relative demand for highly skilled labour