Trade and Wage Inequality: Local versus Global Comparative Advantages

Abstract

This paper shows that disentangling the local and global dimensions of trade can be crucial to get a better understanding of the trade impact on wage inequality. In particular, it allows us to reconcile the empirical evidence with the Heckscher–Ohlin–Samuelson predictions. Our focus here is on Italy. As for local trade – within its own cone of diversification – Italy is specialised in the production of unskill-intensive goods, while for global trade – with respect to the other cone of diversification – it is mainly specialised in the production of skill-intensive goods. On the evidence of these specialisation patterns, we point out that the local trade has a strong impact on wage inequality. In particular, in line with the Heckscher–Ohlin–Samuelson predictions, the local export performance reduces wage inequality as it favours blue-collar workers. As for global trade, it affects and increases wage inequality through the export channel, again consistent with the Heckscher–Ohlin–Samuelson predictions.