Quality Goods, Trade Liberalization and Wage Inequality


This paper constructs what I can call the Chinese model of quality good trade to capture the feature of Chinese economy at the present time. Reflecting on the feature of Chinese economy, I introduce two types of tariff on imports: a tariff on final quality goods and a tariff on intermediate goods. This study shows that when trade liberalization is carried out, the two types of tariff have completely different effects on wage inequality. Moreover, it is worth pointing out that welfare inequality between unskilled and skilled labors moves in opposite directions with wage inequality due to trade liberalizations.

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