The objective of the paper is to answer an often-asked question : if tariff rates are reduced, what will happen to wage inequality ? We consider two types of wage inequality : between occupations (skills premium), and between industries. We use two large data bases of wage inequality that have become recently available and a large dataset of average tariff rates all covering the period between 1980 and 2000. We find that tariff reduction is associated with higher inter-occupational and inter-industry inequality in poorer countries (those below the world median income) and the reverse in richer countries. The results for inter-occupational inequality though must be treated with caution.
*Published: This paper was subsequently published as Does Tariff Liberalization Increase Wage Inequality? Some Empirical Evidence, Branko Milanovic, Lyn Squire, in NBER book Globalization and Poverty (2007)
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