Openness and Wage Inequality in Developing Countries: The Latin American Challenge to East Asian Conventional Wisdom

Abstract

The experience of East Asia in the 1960s and 1970s supports the theory that greater openness to trade tends to narrow the wage gap between skilled and unskilled workers in developing countries. In Latin America since the mid-1980s, however, increased openness has widened wage differentials. This conflict of evidence is probably not the result of differences between East Asia and Latin America. Instead, the conflict is probably the result of differences between the 1960s and the 1980s, specifically, the entry of China into the world market and, perhaps, the advent of new technology biased against unskilled workers.