WAGE INEQUALITY, UNEMPLOYMENT, AND EXPORT-ORIENTED POLICY

Abstract

This paper presents a simple model to address why openness to trade increases the dispersion in wages, unemployment, and capital intensity. However, the dispersion is stronger for developing countries. We argue that the export-oriented policy that most developing countries have widely adopted in recent decades, amplifies the dispersion in these countries. This paper also helps explain the conflicting evidence between two groups of developing countries: East Asian and Latin American. In comparison to the latter, the former has a track record since the 1960s of a miraculous performance in narrowing wage inequality and unemployment by practicing export-oriented policies.