Does Trade Liberalization Reduce Gender Wage Gap in the Manufacturing Sector of Pakistan?

Abstract

This research examines the impact of trade reforms on the gender wage gap (GWG) by using micro-level data of Pakistan. It is generally believed that the increased foreign competition in developing economies decreases the GWG. Therefore, by using the two-step estimation approach the beneficial effect of trade liberalization on the GWG is investigated. The results show that trade liberalization affects wages and reduces the GWG. The results indicate that a decrease in protection rates leads to a reduction in the GWG. The association between trade liberalization and the GWG is positive and significant regardless of the approaches used (i.e. gender industry wage premium and real log weekly GWG). Further, the findings show that lagged trade policy is also positively associated with a gender wage premium and the real log weekly GWG. Our findings are robust and insensitive to the inclusion of other controls. In order to lessen the GWG, the government should design certain policies that could contribute positively to liberalize trade.