Low skill products by high skill workers: the distributive effects of trade in developing countries

Abstract

The canonical models of trade in the IPE literature predict that low skill workers are the primary beneficiaries of free trade in the developing world. But empirical evidence shows that high skill workers benefit from and support free trade more in these contexts. We argue that although developing countries have a comparative advantage in low skill products, these products are produced by workers that are highly skilled relative to the average worker in these countries. As a result, trade benefits relatively high skill workers, especially those exposed to trade. This explains why inequality is rising in these countries and why this group is most supportive of free trade. We illustrate some micro- and macro-level implications of our argument using cross-national survey data and aggregate data on trade and inequality. The findings have important implications for the political economy of trade in developing countries.