Human Capital, Trade Liberalization, and Income Risk

28 Pages Posted: 20 Apr 2016

See all articles by Tom Krebs

Tom Krebs

University of Mannheim

Pravin Krishna

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS); Brown University - Department of Economics; National Bureau of Economic Research (NBER)

William F. Maloney

World Bank - Poverty and Economic Management Unit; IZA Institute of Labor Economics; World Bank - Development Research Group (DECRG)

Date Written: July 1, 2007

Abstract

Using data from Mexico, the authors study empirically the link between trade policy and individual income risk and the extent to which this varies across workers of different human capital (education) levels. They use longitudinal income data on workers to estimate time-varying individual income risk parameters in different manufacturing sectors in Mexico between 1987 and 1998, a period in which the Mexican economy experienced substantial changes in trade policy. In a second step, they use the variations in trade policy across different sectors and over time to estimate the link between trade policy and income risk for workers of varying education levels. The authors' findings are as follows. The level of openness of an economy is not found to be related to income risk for workers of any type. Furthermore, changes in trade policy (that is, trade policy reforms) are not found to have any effect on the risk to income faced by workers with either low or high levels of human capital. But workers with intermediate levels of human capital are found to experience a statistically and economically significant increase in income risk immediately following liberalization of trade. The findings thus point to an interesting non-monotonicity in the interaction between human capital, income risk and trade policy changes.

Keywords: Economic Theory & Research, Inequality, Free Trade, Income, Political Economy

Suggested Citation

Krebs, Tom and Krishna, Pravin and Maloney, William F., Human Capital, Trade Liberalization, and Income Risk (July 1, 2007). World Bank Policy Research Working Paper No. 4276. Available at SSRN: https://ssrn.com/abstract=999486

Tom Krebs

University of Mannheim

United States

Pravin Krishna

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS) ( email )

1740 Massachusetts Avenue, NW
Washington, DC 20036-1984
United States

Brown University - Department of Economics ( email )

64 Waterman Street
Providence, RI 02912
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

William F. Maloney (Contact Author)

World Bank - Poverty and Economic Management Unit ( email )

1818 H Street NW
Washington, DC 20433
United States
202-473-6340 (Phone)
202-522-0054 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

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