TRADE AND WAGES IN CHILE – A CONTEMPORARY ANALYSIS

By signing a multitude of free trade agreements (FTA) over the past 20 years, Chile has continued to aggressively open up its market to world trade. Most importantly, the country signed agreements with its biggest trading partners (USA, EU, China) between 2003 and 2006. This case study assesses how these three FTAs affected wages in the Chilean traded goods sector. It therefore seeks to assess the relationship of trade and wages in a more contemporary setting, allowing an assessment of magnitude and mechanisms driving it. The Heckscher-Ohlin-Samuelson (H-O-S) framework hereby provides the theoretical setting. Two main findings can be reported from the results provided in this study: First, no striking influence of trade on wages could be identified. The results do exhibit statistical significance, but their small size seriously diminishes their economic relevance. Second, no clear evidence for the predominance of the H-O-S mechanism are found. Even though H-O-S cannot be fully ruled out in the results as a mechanism that governs the relationship, it is likely not the only, or even most important one.