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Trade Liberalisation and Wage Inequality in the Philippines
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AENEAS HERNANDEZ
BRENDAN IMMANUEL MIRANDA MARTIN WILLIAM REGULANO ANDRAE JAMAL TECSON | ACADEMIC SUBMISSION The Graduate Inequality Review, Volume II (July 2023) |
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Abstract: The expansion of trade liberalisation during the past four decades has led to many economic implications. While past studies in the Philippines focusing on the earlier episodes of trade liberalisation report insignificant and contradictory results, there is still a lack of attention to the twenty-first century when the country continued its trade liberalisation reforms through participation in numerous free trade agreements. This paper explores the impact of the reduction of tariffs in the Philippines coming from the rise of bilateral and regional trade agreements on wage inequality between skilled and unskilled workers during the early twenty-first century. Using a unique dataset that combines pooled cross-sectional labour force data and panel data on industry-level characteristics, we provide new evidence on the impact of tariff reductions on wage inequality between skilled and unskilled workers in the Philippines. Our findings show three important pieces of evidence. First, tariffs, ceteris paribus, have an insignificant effect on wages. Second, tariff reductions have no impact on the industry skill premium. Lastly, import penetration and export exposure significantly affect industry skill premium. Overall, these results suggest that while trade liberalisation through tariff reduction has no impact on wage inequality between skilled and unskilled workers in the Philippines, it may have an indirect effect through trade flows. Policy recommendations include studying the impact of specific trade agreements on labour markets, pushing for structural transformation in the manufacturing sector, and reforming education and skills training in the country. |
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