The Impact of trade liberalization on wage inequality: evidence from Chile

In this paper the relation between trade liberalization and individual wages for Chile between 1990 and 2009 is studied. Since the seventies, the economy of Chile changed from a closed to an open economy. This resulted in high economic growth, but inequality remained remarkably high. The exports and imports have indeed increased enormously and wage differences between 1990 and 2009 have narrowed. The effect of trade liberalization on the wage structure of Chilean individuals is studied by the Heckscher-Ohlin-Samuelson (HOS) model. This empirical study distinguishes three groups: (1) all persons, (2) low educated and (3) high educated persons. The effects of imports and exports together is tested, as well as imports and exports separately and the trade openness within these groups. The results are mixed. The impact of exports is in favor for high skilled persons but not significantly. The effect of imports and trade openness show a pro-poor growth, because the effect of imports on individual wages is higher for low than for high educated persons. Overall can be concluded, that the impact of import and trade openness on individual wages is in line with the Heckscher-Ohlin theory.