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Review of Middle East Economics and Finance

Ed. by Dibeh, Ghassan / Assaf, Ata / Cobham, David / Hakimian, Hassan / Henry, Clement M.

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1475-3693
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Volume 9, Issue 3

Economic Globalization, Wages and Wage Inequality in Tunisia: An ARDL Bounds Testing Approach

Ousama Ben Salha
  • Corresponding author
  • National Engineering School of Gabes, University of Gabes, Gabes, Tunisia; International Finance Group-Tunisia, University of Tunis El Manar, ElManar, Tunisia
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Published Online: 2013-12-12 | DOI: https://doi.org/10.1515/rmeef-2012-0037

Abstract

This article conducts an empirical investigation on the impact of economic globalization, that is, international trade and foreign direct investment (FDI), on the level and structure of real wages in Tunisia. In a first step, we look at the effects of economic globalization on the average real wage in the whole economy. Then, the same relationships are checked in manufacturing industries. In a second step, we assess the impacts of international trade and FDI on the evolution of wage inequality. To do this, the recently developed autoregressive distributed lag bounds testing approach to cointegration is conducted on annual data covering the period 1970–2009. This approach allows simultaneously investigating the long-run relationships as well as the short-run dynamic adjustments toward the equilibrium. Based on the econometric analysis, three main findings have been put forward. First, international trade positively affects the economy-wide average wage only in the long-run. On the contrary, FDI flows exert no effects. The second finding is that international trade and FDI positively affect only the most exporting industry in the country, that is, the textiles, clothing and leather industry. Finally, our results do not give support to the predictions of the Heckscher–Ohlin and Stolper–Samuelson theorem, since wefound weak empirical evidence that economic globalization reduces wage inequality between skilled and unskilled workers.

Keywords: international trade; foreign direct investment; wages; wage inequality; cointegration; ARDL; Tunisia

JEL Classification: J31; F16; F21

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About the article

Published Online: 2013-12-12


A previous draft of this article was presented at the conference on “Inequalities, Skills and Globalization” (Lille, France, 21–22 June 2012), the 11th Annual International Conference of the Middle East Economic Association (Alexandria, Egypt, 25–27 June 2012) and the Cambridge Business & Economics Conference (Cambridge, United Kingdom, 27–28 June 2012). I am indebted to all participants for constructive comments. All remaining errors are mine.

Several recent reports emphasize the labor markets outcomes of economic globalization, such as the World Economic Outlook (International Monetary Fund 2007) or the project on “Trade and employment: challenges for policy research” (Jansen and Lee 2007).

As motioned by the World Bank (2008), the quality of human capital is considered as one of the comparative advantages of Tunisia in the industrial activities (World Bank 2008, 96–7).

Exception is the study of Haouas, Yagoubi, and Heshmati (2005) that focuses only on the effects of trade liberalization on wages using data covering the period 1971–1996. Thus, it does not allow capturing the effects of the FTA agreement with the European Union on the evolution of wages.

As reported by Ben Salha (2013), Since the 1970s, about 300,000 jobs have been created by foreign firms in Tunisia.

The factors intensity of sectors is such a way that: .

The authors classify manufacturing industries into four sub-groups, depending on two criteria: the capital/labor intensity and the level of skill needed in the industry. Sub-sectors are capital intensive using unskilled labor, capital intensive using skilled labor, labor intensive using unskilled labor and labor intensive using skilled labor. For the classification, authors are based on Peneder (2001) and Landesmann, Vidovic, and Ward (2004).

According to the World Bank, in 2010, Tunisia’s fiscal deficit and public debt were about 1.3% and 40% of GDP, respectively. Starting from 1990, the inflation rate has generally ranged between 2% and 5%.

In 2006, the national telecommunication company was privatized. 35% of its capital (3,052 million Tunisian dinars, the equivalent of 2,290 million US dollars) was transferred to the Tecom-Dubai Investment Group.

Statistics are based on a study conducted by the World Bank and the Tunisian ministry of vocational training and employment. The global sample is composed of 4,763 youth graduates.

Until 2011, all labor unions were centralized in the Union Générale des Travailleurs Tunisiens (UGTT). After this date, two additional labor unions have been created.

For the complete data description, sources and abbreviations, see Table A.1 in the Appendix.

NACE Rev.2 is the statistical classification of economic activities in the European Community. It offers a classification of economic activities in the European community in 615 categories. It was adopted starting from December 2006 to replace the NACE Rev.1.1 (Eurostat 2008).

Table A.2 presented in the Appendix summarizes the estimated models for each hypothesis.

Narayan (2005) computed critical values for small samples where the number of observations ranges between 30 and 80.


Citation Information: Review of Middle East Economics and Finance, Volume 9, Issue 3, Pages 321–356, ISSN (Online) 1475-3693, ISSN (Print) 1475-3685, DOI: https://doi.org/10.1515/rmeef-2012-0037.

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