Scandinavian Working Papers in Economics

Working Papers in Economics,
University of Gothenburg, Department of Economics

No 241: Does openness reduce wage inequality in developing countries? A panel data analysis

Farzana Munshi ()
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Farzana Munshi: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: Box 640, SE 405 30 GÖTEBORG

Abstract: This paper provides panel data evidence on trade liberalization and wage inequality in Bangladesh. Using several standard econometric models, wage equations for skilled and unskilled workers in the formal manufacturing sector are estimated for the 1975-2002 period. The results, particularly the estimates from a dynamic fixed effects model, provide some weak evidence that openness contributes to a reduction in wage inequality between skilled and unskilled workers. The results also indicate that real wages of both unskilled and skilled workers increased during the period.

Keywords: Bangladesh; openness; wage inequality; panel data; panel unit root; dynamic model

JEL-codes: C33; F14; F15; O15

26 pages, First version: December 14, 2006. Revised: February 6, 2008.

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