Does Trade Lead to Wage Inequality? A Cross-industry Analysis

Abstract

This paper investigates empirically the impact of increasing volume of trade on wage inequality in four industrial sectors in Hong Kong. We generate the hypotheses within the context of the Heckscher-Ohlin model, and use the cointegration techniques to test the hypotheses. Because of the large volume of trade between Hong Kong and Mainland China, this empirical study contributes to the lively debate in recent economic literature about the effects of trade on wage inequality. The cointegration analysis in this paper shows support for the hypotheses that the wage ratio between skilled workers and unskilled workers in Hong Kong raised significantly as the trade volume between Hong Kong and China increased. Thus, our finding adds evidence to the Stolper-Samuelson theorem that unskilled workers in developed countries will earn lower relative real wage rates from trading with developing countries.