Title: Trade and the skill premium in developing countries
Description: "The rise in income inequality in developing countries after trade liberalization has been a puzzle for trade theory, which predicts the opposite effect.  The authors present a model with imported intermediate goods in which the relative wages of skilled labor can rise due to higher imports of inputs or due to skill-biased technological change.  The evidence from Peru in the post-liberalization phase in the early 1990s supports the skilled-biased technological change hypothesis.  The authors find that most of the decrease in the blue-collar wage share in the manufacturing industries can be explained by the increase in machinery imports that followed liberalization, suggesting that the skilled-biased technology is embodied in imported machinery.  JEL classification: F16, J31, 033, 054, 015"--Federal Reserve Bank of Atlanta web site.
Subjects: Econometric models, Economic aspects of Free trade, Free trade, Income distribution
Places: Developing countries, Peru