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Source: Burtless (1995a) Wage inequality in the US, 1969-93

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Skilled/unskilled wage ratio, US, 1961-93 Sources: Sachs and Shatz (1995), Feenstra and Hanson (1995); Burtless (1995b)

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North: Abundant in skilled labor, poor in unskilled labor Specializes in high-tech (e.g. machinery) Trade opens Low-tech output contracts, high-tech output expands Excess supply of unskilled labor Unskilled wage is depressed Both sectors become more intensive in unskilled labor Full-employment is preserved Unskilled wage does not adjust Unemployment rises in the import-competing sector The politics of trade liberalization in the North Median-voter unskilled: Opposed to trade liberalization

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Source: Anson Cadot 2004. Determinants of attitudes toward trade liberalization: EU-Switzerland Results of Swiss referendum on bilateral accords

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Determinants of attitudes toward trade liberalization: CUSFTA Results of Canadian exit poll Source: Beaulieu, 2002. Notes: age and constant omitted. Similar regression with sector of employment as regressors returns only insignificant coefficients. Stolper-Samuelson? Who’s the « South »?

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The median-voter theorem Half the population (by def. of the median) Less than half the population Distribution of voters’ preferred policies Policy preferred by the average voter Policy preferred by the median voter Theorem If two policies, A and B, are subjected to a vote, and A is the policy preferred by the median voter, then A is sure to win whatever B. Definition Suppose that policy can be represented by a single number (e.g. rate of a uniform tariff) and let p be the policy preferred by the median voter. Then half the electorate want a policy higher than p and half want a policy lower than p.

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Income distribution over time: China Data source: Sala i Martin 2002 Growing middle class: the median voter is a middle-class individual and has the preferences of the middle class: Improved infrastructure Good education Law and order Outcome: pro-growth policies

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Data source: Sala i Martin 2002 Income distribution over time: Nigeria Shrinking middle class: the median voter is a poor individual and has the preferences of the poor: essentially income/wealth redistribution. Outcome: growth-retarding policies

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South: Abundant in unskilled labor, poor in skilled labor Specializes in low-tech (e.g. garments) Trade opens Low-tech output expands, high-tech output contracts Excess demand for unskilled labor Unskilled wage rises Both sectors become less intensive in unskilled labor Full-employment is preserved Median-voter unskilled: Favorable to trade liberalization The politics of trade liberalization in the South

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Mexico’s trade liberalization Source: Nicita 2004

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Mexico’s trade liberalization: Effect on skilled and unskilled wages Source: Nicita 2004

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Mexico’s trade liberalization What did Mexico liberalize? What did it protect in the first place? Source: Nicita 2004

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What is an unskilled job? Probability of being hired as a garment worker in Madagascar as a function of worker characteristics (probit reg) Source: Nicita 2004 Effect of education peaks at 11 years---more than the work-force average 11 years workforce average: 9 years

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Trade policy and factor endowments (i) Source: Mayda and Rodrik, 2002. GDP per capita γ education prob (pro free trade) education prob (pro free trade) education prob (pro free trade) case A case B case C γ < 0 γ > 0 γ = 0 Unit of observation: individual (data from national surveys) Unit of observation: country (regression coefficient estimated on national survey)

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Trade policy and factor endowments: empirical results from ISSP Source: Mayda and Rodrik 2002

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Trade policy and factor endowments: empirical results from WVS Source: Mayda and Rodrik 2002

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k σ South Korea’s k Figure 2.3 Tariffs, endowments, and inequality Regression surface for t = 3.291 - 0.051 σ + 0.006 σk - 0.328k Source Table 1 of Dutt-Mittra (2002), tariff regression with controls t

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© 2007 Pearson Addison-Wesley. All rights reserved Chapter 5 Factor Endowments and Trade I: The Specific Factors Model.

© 2007 Pearson Addison-Wesley. All rights reserved Chapter 5 Factor Endowments and Trade I: The Specific Factors Model.

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