Abstract：Based on Chinese manufacturing firm dataset over the period of 1998-2007, this paper examines the impact of trade liberalization on intra-industry wage inequality in 71 manufacturing industries. The basic finding of our empirical analysis is that the reduction of output tariffs and effective rates of protection significantly lowered intra-industry wage inequality. Besides, increasing FDI exposure was detrimental to wage equality, while improvement of export-orientation and development of domestic private firms brought about positive income distribution effects. The use of different wage inequality measures doesn’t undermine our basic finding. The mechanism of trade liberalization is that it increases the firm survival threshold, and the within-industry productivity dispersion is therefore lowered, in the end, this results in less intra-industry wage inequality. This study suggests that trade liberalization has important implications for mitigating China’s income inequality.
Keywords: Trade Liberalization, Intra-industry Wage Inequality, Chinese Manufacturing
source:Finance & Trade Economics ,No2,2014