Abstract

We study the impact of the 1988-1994 trade liberalization in Brazil on the wage distribution. We explore three main channels through which trade liberalization could have affected the wage distribution: increasing returns to skilled workers due to Hecksher-Ohlin adjustments to trade policy, trade induced skill-biased technological change, and changes in industry wage premiums. Our results suggest the trade reform in Brazil did partially contribute to the growing skill premium through skill-biased technological change, which was partially instigated by the increased foreign competition. We also find that sector specific returns to skill increased by more in sectors with bigger tariff reductions. However, we find little support for Hecksher-Ohlin type adjustments to trade reform. Overall, the effects of trade reforms on wage inequality seem relatively small.

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