Search results

This chapter builds up a simple general equilibrium trade model where, in the absence of a credit market for human capital formation, initial distribution of capital endowment and relevant factor prices determine the size of the three income classes. The poor, with little capital, invests in traditional manufacturing, the middle-income group invests solely in human capital and the rich invests in both. Chances are that such an economy will export both high- and low-skilled goods, importing the middle one. Conventional wisdom suggests that greater skill premium encourages skill formation. In contrast, we show that higher unskilled wage and lower degree of income inequality are consistent with greater skill formation. We also show that protection discourages skill formation and may aggravate inequality.

The collection of essays in this volume provides fairly comprehensive analyses of contemporary theoretical and policy issues in international trade. As technological revolution eliminates communications costs and the countries gear towards more open trade regimes through negotiations at the WTO, the world effectively gets smaller. The evolution of research in trade theory and policy has closely followed the trends in global economy. Issues such as how trade affects distribution of income across and within nations, generates resources for growth, leads to bilateral and multilateral cooperation and conflicts, and many others have been picked up and analyzed systematically in various chapters of this volume. Before we go into the details of the relevant sections and constituent chapters, it is worthwhile to emphasize two special features of this volume.

We present a model that allows us to compare the effects that frictions involved in immigration and international outsourcing have on the skilled–unskilled wage inequality. We show that, for any given level of contractual friction in the production of intermediate goods, the wedge between the wages of the skilled and unskilled workers widens as the frictions in immigration wear out. The skilled–unskilled wage gap, for any given level of friction in immigration, is sensitive to variations in contractual frictions in intermediates that affect international outsourcing.

The existing theoretical literature does not adequately take into consideration the existence of non-traded goods and the nature of capital mobility between the traded and the non-traded sectors in analyzing the consequences of liberalized investment policies on the relative wage inequality in the developing countries. The present chapter purports to fill in this gap by using two four-sector general equilibrium models reasonable for a developing economy. We have examined the outcome of foreign capital inflows on wage inequality when non-traded goods are intermediate inputs and final goods. Appropriate policy recommendations for improving the wage inequality have also been made.

This series is aimed at economists and financial economists worldwide and will provide an in depth look at current global topics. Each volume in the series will focus on specialized topics for greater understanding of the chosen subject and provide a detailed discussion of emerging issues. The target audiences are professional researchers, graduate students, and policy makers. It will offer cutting-edge views on new horizons and deepen the understanding in these emerging topics.