The Effect of International Trade and Wages of Skilled and Unskilled Workers: Evidence form Brazil

This paper assesses the impact of trade on wages of skilled- and unskilled workers in developing countries and presents new evidence for Brazil. The relation between trade and wages has been analyzed using a new econometric model that links (sectoral) trade intensity ratios of Brazilian states to wages of individuals active in the corresponding state (and sector), while controlling for individual characteristics. The findings are interpreted using trade theories of Melitz and Hekscher & Ohlin. I find that imports have negatively affected wages of the skilled and unskilled, but disproportionately wages of the skilled and exports have positively affected wages of the skilled and unskilled, but disproportionately wages of the unskilled. These results are in line with the theories of Melitz and Hekscher & Ohlin.