The Impact of Trade Liberalization on Labor Market of Developing Countries: What can Literature tell us?

Abstract

This paper reviews recent developments of the impact of trade liberalization on labor market in developing countries (henceforth DC). Many studies suggest that there is a benefit impact of trade liberalization on abandon factor of production (unskilled labor in the case of DC). However, several others works show a reversal trend in these countries such as increased in relative employment and relative’s wages of skilled labor. These later results contradict the prediction of Heckscher Ohlin Stolper-Samuelson model (HOSS) model. To reconcile theory with this empirical controversy some authors have tried to extend the traditional theory of international trade by relaxing one or more assumptions of model. The main message that can be learned about this problem is that neither empirical nor theoretical research have advanced an explanation for this puzzling. By comparing the result of the impact of trade liberalization on labor market in the Latin America and the East Asian regions, we show that differences in countries characteristics play a role to explaining this puzzling.