Trade, Technology and the Demand for Skills in Tunisia, 1998–2002

Although many developing countries have experienced an increase in the relative demand for skilled workers leading to a rise in wage inequality, the role played by trade in this trend remains a matter of debate. Using a firm-level database covering manufacturing and non-manufacturing sectors in Tunisia over the period 1998–2002, this paper investigates whether trade-induced technological change could explain the increase in the relative demand for skilled workers. The empirical analysis is based on the estimation of an employment-share equation. Controlling for potential endogeneity issues, the results confirm that trade-induced technology adoption was a channel through which openness to trade raised the relative demand for skilled workers in Tunisia. Unlike trade, however, foreign investment in Tunisia did not appear to increase the demand for skills.