Trade Openness and Wages Rates: New Evidence and a New Mechanism

Wang Liyong, Hu Rui

The Journal of World Economy ›› 2020, Vol. 43 ›› Issue (4) : 145-168.

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The Journal of World Economy ›› 2020, Vol. 43 ›› Issue (4) : 145-168.

Trade Openness and Wages Rates: New Evidence and a New Mechanism

  • Wang Liyong1, Hu Rui2
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Abstract

This paper explores the dynamic heterogeneity impact of trade openness on labour wage income using data from the Chinese household income survey and the unconditional quantile regression method. The results show that trade openness has significantly increased the labour force wage income in China, with a dynamic impact that first increases and then decreases. The impact of trade openness on the wage income of different groups is significantly dynamic and heterogeneous, and its effect during the initial period within high-wage groups is significantly more pronounced than in low-wage groups, which has been widening the wage gap. However, with the increase in the degree of trade openness, this phenomenon tends to be mitigated and in recent years it has shown a characteristic "inverted U-shape", i.e. the impact of trade openness on the average wage group is the most stable and consistent, and this plays a role in regulating the wage gap. This heterogeneous effect can be explained by the mechanism associated with foreign direct investment.

Key words

trade openness / wage income / heterogeneity / unconditional quantile regression / quantile effect

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Wang Liyong, Hu Rui. Trade Openness and Wages Rates: New Evidence and a New Mechanism[J]. The Journal of World Economy, 2020, 43(4): 145-168

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