Trade liberalization and the inter-industry wage premia: the missingf role of productivity

Lourenço S. Paz

Research output: Contribution to journalArticle

3 Scopus citations

Abstract

The literature concerning the effect of tariffs on the inter-industry wage premium has not addressed the role of total factor productivity (TFP) in determining both the wage premium and tariffs. This omission not only overlooks an important determinant of wage premium but also invalidates the use of the pre-reform tariff level as an instrument for the change in tariffs. Based on an analysis of Colombian data, I find that including TFP in the estimated model of the effects of tariffs on the wage premium leads to a 41% decrease in the effect of tariffs on the inter-industry wage premium relative to the model that omits TFP. More specifically, a 10 percentage point decrease in tariffs reduces the wage premium by 1.01%, whereas a 10% increase in TFP raise wage premium by 1.6%. This finding suggests the importance of using policies that boost productivity to offset the effect of tariffs on the wage premium.

Original languageEnglish (US)
Pages (from-to)408-419
Number of pages12
JournalApplied Economics
Volume46
Issue number4
DOIs
StatePublished - Feb 1 2014

Keywords

  • Colombia
  • inter-industry wage premium
  • productivity
  • trade liberalization

ASJC Scopus subject areas

  • Economics and Econometrics

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