Trade Liberalization and the Relative Wages for More‐Skilled Workers in Costa Rica

Abstract

A prominent argument regarding the effects of trade liberalization on the dispersion of wages in LDCs is that trade liberalization should lower the relative demand for more‐skilled workers by inducing between‐sector shifts towards sectors intensive in unskilled labor. Based on a disaggregating, nonparametric approach that imposes little structure on the data, the paper presents evidence that trade liberalization in Costa Rica led to an increase in relative demand. Other findings are consistent with the “skill‐enhancing‐trade hypothesis,” whereby trade liberalization induces an acceleration of physical capital imports, which raises relative demand through capital–skill complimentarily.

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